Inflation-Adjusted S&P 500 Price Pattern Signals Prolonged Downside

Veteran investors and traders know that stock prices follow discernible patterns. And if you can read those patterns, you may be able to make lots of money or avert a disaster. The multi-decade chart of the inflation-adjusted monthly closes of the S&P 500 is an important chart to study because it may hold clues to the future direction of stock prices.

Notice the three distinct price cycles, each of which exhibits a multi-year upside and downside. The first cycle ran from 1920 to 1949 and includes the 1929 crash and the 1932 bottom. The second cycle ran from 1949 to 1982. The current cycle began in 1982, peaked in 2000 and appears to be on the downside. If this downside proceeds like the two previous cyclical declines, stocks will be on a downside trend for many years.

During the coming years, traders will take advantage of market volatility to make money, but buy-and-hold investors are unlikely to be rewarded with significant gains.

Related Articles:

Get Set for a Rocky Stock Market in 2008
Stock Market Delivers Meager Gains to Investors
Stock Market Returns Are Likely to Decline for Buy-and-Hold Investors
Stock Market Returns Are Likely to Decline for Buy-and-Hold Investors - Part II
Using Logarithmic Scale Price Charts to Spot Tops

Posted April 1, 2008.