Apart from the Elliot waves that some of us seem to recognize in the trading patterns of stocks, there is also the sometimes very obvious fact that markets love symmetry. Not always to the point of perfection but nevertheless close enough to provide a workable basis for making predictions with regard to the future. I have no idea why this often happens or what causes it to happen, nor does it really matter.
The chart below is inflation adjusted along the x axis. A move up or down of a certain magnitude is therefore proportionally the same to a similarly sized move elsewhere on the chart. So the move from the lows of the depression (1929/31) to the highs of 1966 is pretty well equal to the move from 1982 to 2021. In fact if you were to insert a mirror right in the middle perpendicularly to the axis you would see a near perfect image of what actually occurred except that it is upside down.
What happens next is what matters. You will notice right off the bat that just about every time the upper trendline is reached or slightly exceeded stocks drop by at least 50%. This has happened four or five times in the last century and could happen again.
Sentiment always plays a big role. Those of you who are old enough will remember the book “Dow 36000” written or published in 1999 by James Glassman and Kevin Hassett. The book was received with a good dose of ridicule as it was generally perceived to be too optimistic. In essence the book was about the vanishing premium stocks required over and above debt instruments and on that score it seems to have hit the nail on the head even if the timing was dramatically off. Then nobody believed it and now nobody will embrace the possibility that we might go down big time We are always fully in denial and that is exactly what is needed to make these things happen. By the way Mr. Hassett is an economist and he worked in the Trump administration. He is always smiling from ear to ear, unique for an economist.
We will soon find out if symmetry really matters. I would bet that it does.
See also my March 9 blog on the Dow.