A technical analysis of 80 years of S&P500

By Paul | Published: August 7, 2009

One of the earlier popular post on this site is my view on the pre-tech-bubble trendline from before year 2000.  However, that trendline was broken in October 2008 as I’ve noted.

Since the recent actions in the market has often been compared with the Great Depression, I’ve decided to chart S&P500 all the way back to that era.  See the monthly chart of Figure 1 below from 1928 to today for the S&P500.

S&P 500 Index

S&P 500 Index

First of all, as evident in Figure 1, the market dropped a lot more in 1929-1932 than what we’ve been seeing in 2008-2009 so far.

Secondly, notice the channel bounded by the two outer white lines?  The channel drawn have been bounding the market pretty well.  Moreover, if we compare the list of recessions in the U.S. with Figure 1, you can see that as a rule of thumb, the economy is in boom if the market is in the upper half of the channel, and the economy is struggling if the market is in the lower half of the channel.  The middle white line marks the middle of the channel for easier observation.

Based on the above, the follow years are in the upper range, with some rounding:

  1. 1932-1940, 8 years
  2. 1954-1973, 19 years
  3. 1986-2008, 22 years

and the follow years are in the lower range:

  1. 1940-1954, 14 years
  2. 1973-1986, 13 years
  3. 2008-????

Since my knowledge on modern history is abysmal, I can’t comment on what happened in these eras to verify this superficial categorization.  This is certainly worth further researching.

Thirdly, and this one is a positive remark, is that the RSI has only gone below 25 three times in the last 80 years, and the two times that it occurred in the past (1932, 1974), it is when the market/economy has reached a major bottom.

Now, zooming to the current few years in Figure 2.  You can see that we’ve managed to push above the 200 month moving average this month.  That isn’t much on its own, the challenge now is to see if we can stay above it (1000 on the S&P500) by end of August.

S&P 500 Index

S&P 500 Index

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Related posts:

  1. Post-market Analysis December 10, 2008
  2. 20 year S&P 500 trendline actually broken months ago
  3. Post-market analysis December 11, 2008
  4. Pre-market analysis for November 21, 2008
  5. Pre-market Analysis December 1, 2008
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