Charts and more charts

Above are Dow charts from the 1970's recession, the 1987 crash and the 2001 recession (click on them to enlarge them). When looking at the 2001-2003 timeframe we had a major downturn, rebounded about 25% and went lower a year later before the bull run that just ended last year. The 1987 crash did have a relatively quick rebound, but it still took 2 months for the real test of the bottom. The 1970's recession had a 20% drop in late 1973, a mild rebound of 10% before a 30% downdraft and then notice the test of that bottom was 2 months later.

These types of events don't fix themselves within a given week. We've gotten so used to V shaped bottoms and quick rebounds on short term weakness that we expect it all the time now. We're in for what could be a deep recession in my opinion. There are too many economical problems to be fixed and run through quickly. Once we do find the true bottom we'll bounce nicely but then I believe we'll be stuck in a trading range for at least a couple of years.

One quote I read on a site that I like says "History doesn't always repeat itself, but it does rhyme." So that's why I'm supplying the charts from previous troubled times. We won't see an identical pattern, but by knowing what has happened in the past we can be ready for what could happen in the near future.

So, what if we do have a strong rebound right away? Great, but that tells me we haven't hit the true bottom. It's nothing but a sucker rally, otherwise known as a dead cat bounce (familiar with that term? In essence it's a saying related to the fact that even if you drop a dead cat it'll bounce a little bit). Some rallies last a while, some only last a couple of days. The 11%, 936 point rally we had this past Monday was one. It was a relief rally. We'd dropped 20% in short order, we were due, and we got it, but then it didn't build on itself, there wasn't any more juice to take things higher for even another day. 9000 seemed to be a resistance level, we couldn't close above it yesterday.

I'm watching out for anything and everything. Playing devils advocate with myself, the fact that we dipped down intra-day to the 8200 level on Wednesday and bounced means that's a possible support level and it was higher than the 7900 intra-day low we hit last Friday, the low point of all this.

In essence you can drive yourself crazy looking at both sides of things and what it boils down to sometimes is stepping back, looking at the big picture, using your gut, some common sense and saying "what's really going on in the economy, the country and the world".

I've found a charting method that intrigues me. I'm having a little trouble getting my head wrapped around how it works. If I can get my pea brain to grasp it I'll follow it for a while and see if it's worth explaining.