My monthly chart was log. I have not abandoned log entirely. I use it however primarily on the weekly or monthly charts and then mostly as a curiosity.
I used a mean regression channel, with 2 standard deviations, to define the boundaries of a working channel from 1995 to the present on the weekly, linear, chart. Interestingly enough the non-log mean regression channel has a rising bottom that would allow the Naz to decline, over the next 1-6 months, to something in the neighborhood of 2500. The log monthly going all the way back to the late 80's also defines a channel bottom that would provide support, along the rising bottom (inner channel line), in the area of 2500. So in effect they agree with one another. It's not that important though.
Unless we are creating some huge, long, rounding top which eventually changes the trend to a 1 to 5 year declining trend, we won't likely go much below the area of 2500. A correction to 2500 leaves intact a very long term, uptrend, on either chart weekly or monthly, log or linear.
While I do not buy into the "new age", "things are different this time" philosophy, I do believe that we are in the midst of a major improvement in the expense model that business ran on from the early 1900's until the early 80's. This improvement has allowed business to be conducted or run with efficiency never before achieved.
Anyone who lived from the early 1900's to the present can say beyond all doubt that farming has changed. The diesel-powered tractor changed, entirely, the system of farming for eons past. Many things in the interim have improved and changed our lives, business, and medicine. But changes taking place with the advent of the computer, the mapping of the genome, are not just minor improvements. They are irrevocably re-mapping the efficiencies of business and medicine.
Most all of the manias of recorded history occurred in times of change. Change, which was bringing about sustained, permanent, differences in the way the civilized world, went about business. Many of them in fact were focused on how we moved materials or information: The canal building mania, the train building mania, the age of the auto, the age of electronic communications including TV and the like, the computer which segued into the internet. Wires are becoming wireless. Money is becoming electronic. Mail is becoming email.
All these have permanent effects on business. Each step of the way, we have been able to reduce the expense of carrying out business and improve the product and the bottom line simultaneously. I believe the mania, which accompanies each of the major permanent changes, is based in the reality of the improvements that actually are taking place.
That is why I believe we will only have corrections. Call them bear markets if you must, but in all reality the Naz is not going back down in price to a level that is dictated by pre-internet trendlines; any more than it would go back down in price to a level dictated by the pre-auto era.
The average investor does not know what a process or concept is worth. Yet, he or she is able to sense when a new thing is being created, which will reduce the cost/time of meeting a need. They inheritably know it's worth something more than the old processes. They tend to over estimate the worth for a period of time. As the dust settles, though, each piece of the mechanism finds it's true value. The bubbles all deflate, but we do not go back to the horse and buggy. Time was the value of a horse was such that you could be hung for stealing one. Today, many of us will live our lives without ever even touching a horse. We certainly would have little or no use for one. We do not value a delivery business based on how many pounds of goods the business can deliver by horse drawn wagon.
Some market readers see grave danger in the fact that many stocks have been in a 2-year decline, all the while the Naz is going higher. I see no problem at all with this. It is simply the market mechanisms recognizing the saddle manufacturers, while not completely going out of business, are none-the-less worth less as a future growth prospect, than the businesses forging into new territory. Do we over do it? Sure. But who can know precisely when and by how much? The market sorts it out over time.
This explains why I believe a long term, log, chart overstates the case for correction. While we may suffer a major dip later this fall, we will not be breaking out the saddles and hitching up the wagons. I believe the correction (bear if you like) will be contained within the levels determined by the internet/genome era. Albeit, we could go sideways for a year or better while we burn off the excesses. It is beginning to seem more likely we will spend quite some time just going up and down.
The forces at work in a hard decline are the same forces at work in an extended sideways channel. The force is merely being expressed differently. Pressures can be released explosively or slowly bled off. Either way equalization can be attained. I believe we are in for a long, slow, bleed down. Short-term traders will be fine trading in and out of the consolidation patterns. Long-term investors may find themselves no better, or no worse off, a year from now.
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