Long-term Price Charts Gives Clues About the Future

Why should you care about long-term charts? They are important because they visually present the history of prices from which we can make inferences about future prices. Long-term charts show that prices move in mega trends but within a trend prices can be extremely variable.

DJIA Long-term Prices

This chart shows the DJIA weekly closes from 1930 though May 8, 2006. The very sharp uptrend from 1982 to 2000 and the subsequent downturn after the 2000 peak are prominent patterns.

The second DJIA chart is for the same period but the weekly closes are plotted on a logarithmic scale, which straightens the pattern of price data points. The DJIA has been in an long-term uptrend since the low set in 1932 after the 1929 crash. The 1929 peak and crash are seen on the left side of the chart.

The plot shows three mega trends. The first was the uptrend from the 1932 low to 1966. Note the extremely variable prices in the 1930s. Then the DJIA went into a sideways pattern for 26 years. Buy-and-hold investors did not see large long-term gains during this period. The third mega trend was the 1982 to 2000 bull market. Note the downturn since the 2000 peak.

S&P Long-term Price Cycles

S&P 500 inflation-adjusted prices have completed two grand cycles since 1920. The first, from 1920 to 1950, included the 1929 peak and crash, the great depression and World War II. The second cycle went from 1950 to 1982. The third cycle, which we are in, made its the upside from 1982 to 2000 when the price bubble burst. Assuming the index is on the downside of its cycle, the red dashed line represents one possible future path.

Nikkei 225 Long-term Price Charts

The N225 has been on the downside since it peaked in 1989 but has bounced off the 9,707 low.

The downside trend channel is evident on the log scale price chart.

Related Articles:

Price Chart Primer
Introduction to Price Patterns
Understanding Price Patterns
Price Pattern Gallery
Cyclical Price Patterns

Posted May 14, 2006.