The big picture makes all these ups and downs insignificant.
From Panic to Mania
While most would say that Panic follows Mania, if you believe in broad recurring market cycles, or even that history rhymes,
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then Panic must also precede Mania. Let’s look at the two-century Dow Chart to get the “big picture”.
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The last three times the Dow touched the depicted upper channel line, have been times of stock market mania. True the ’66 mania only kissed the upper channel and the evaluations of the Go-Go market never got to the extremes of the ’29 and ’00 mania peaks. In both ’29 and ’66, the Dow fell from the upper channel to just above the lower channel and then bounced. This was the Panic stage of the market. After bouncing in ’32, the market oscillated sideways. When the market bounces off the bottom channel, the dominant market emotion is despair – because that bottom channel is so low. With the sideways oscillation, the roller coaster market turns despair into disgust. From this disgust the new secular bull is born.
In the first “show me” part of this new secular bull market, doubt is rampant. Most believe the market will turn and “retest the lows”. As time passes and the market reaches the mid-point of the channel, fear subsides and greed dominates. This sets the stage for the final mania stage of the secular bull with a blow-off top.
So to recapitulate, the stages from Panic to Mania are Panic/Bounce/Oscillate from Despair to Disgust/Show Me/Greed/Mania. From the diagram, we are currently in the Panic stage. That we are still early in the Panic stage is attested by the constant “bottom” calls and discussion of when we will return to the old highs. The answer to – Have we reached the bottom? – is have we approached the lower channel of Dow 2900? The answer to - When we will return to the old highs? - is between 2016 and 2020. IOW, the answer to both questions is: Long after anyone cares.
So, if the market is in the Panic stage of going from the upper channel line to the lower channel line, the remaining question is: How does it get there? But that’s another post.
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