Today is the one-year anniversary of the DJIA closing at its highest point ever, at 14,163. It had gone higher than that—the 52 week high is 14,279.96 in midday trading. As of this writing, it is a full 5000 points off from peak, struggling in the low 9000 range. 8000 territory is just a hiccup away.
There have been wild fluctuations of peaks and troughs on this downward pathway, and there is always plenty of financial analysis why it is up one day and down the next. Try as I might to resist, on occasion I succumb to correlating an up or downshift with a current event.
What matters, though, is the trend line. The market, being an imperfect tool for knowing the trend line precisely, will predictably cycle around it in a sine-wave fashion, with day traders knowing this and going long and short to play off of these inevitable rhythms.
Despite the day-to-day financial craziness lately, the DJIA trend line over the past year has been very stable, falling constantly at a rate of—eyeballing the chart—just under 3000 points per year, with it bucking that trend only in the last few days in a serious downward shift. Crashes tend to start slow and accelerate in the middle—and then what happens at the end varies case by case, so it is possible we might be entering the accelerated middle phase.
So, I welcome financial commentators to explain why the trend line is dropping at a rate of almost 3000/year (with peak-to-trough being 2000 points higher than that). If they say it is because of the credit crisis, then I’d ask if there is any reason to believe the current trend will not continue for the next year. If they answer because the financial industry is getting a bailout, then I would say, lets get some popcorn, kick our feet up on the desk, and watch the action as it unfolds.
But I’ll try to avoid getting excited about short-term fluctuations, including this current one. This is a deep spike downward, but I anticipate there will be some recovery before proceeding with its steady downward course.
ADDENDUM: ...and what an anniversary this was, with an already bottomed-out DJIA dropping an additional 7% to 8579, mostly in late-day trading. Not long ago any bottom calls in the 8000s were considered radical, and there is plenty of steam left in this bust.