The setups I include on this blog are used in conjunction with the 3/10macd and the criteria I ascribe to it as a way to alert me to an existing condition of price. The key concept to take away from this blog is that I try to anticipate what will happen on the higher time frame by using a faster time frame to trigger the trade setup. I do not trade a "system" I use two indicators to clue me in to price conditions. Please read the Disclaimer located in the sidebar of this site. I can be contacted via email at
I am always open to questions, comments, or suggestions on how to improve this blog.

Sunday, October 12, 2008

the past two decades

Crazy to think that a whopping ten years ago cell phones were on the fringe of "in" and the median California home price was only $200,000. We've come a long way; technologically speaking anyway, I'm not sure how far the collective society has evolved in those same 10-years.
Going back even further to the late 80's we can sum up how far we've come (again, technologically) by taking a look at this spotlight done on Apple notebooks, from 1989 to present.
Probably the only thing that has been consistent with these products between then and now is their relative expensiveness. I remember back then when video cameras sat on the shoulder and cost $1000 or more. Now you can take videos with a cell phone. Unbelievable.
Anyway, back in 1989 you had the Macintosh Portable. Weighing in at 15.8 pounds and an original cost of $6500! That's over $11,000 adjusted for inflation.Fast forward 19 years and you have the Macbook air; weighing 3 pounds with on original cost of $1800. Both performance-wise and in terms of price the Singularity has occurred.In the same 19-years we have seen the Dow Jones Industrial average increase in value from around 2785 to over 14,000; or a 406% increase from it's 1989 level.
Compare that to 1910 (19-years before the '29 market crash) when the DJIA stood at 81; in 1929 the Dow reached 381, or a 370% increase in those 19-years.
What was going on in America during the period of 1910 - 1929 that saw the Dow Jones Industrial Average increase 370%? Let's take a look:
Cellophane was invented. So was air conditioning, the tungsten coil filaments for light bulbs. Ford perfected the conveyor belt for mass production. The Brassiere, stainless steel, bleach, the electric razor, pyrex glass, FM radio, and penicillin were all invented between this time. Of course there was also World Ward I and the Mexican Revolution.
Of the 370% increase in the Dow from 1910 - 1929, 120% of that growth occurred in the four years between 1925 and October of 1929.
Similarly we had growth in the Dow between 1995 and 2000 of 197%.
Of course, the Dow at 10,800 (October '08) was down 22% from it's highs in October '07 (14,066) before it fell through the floor; falling an additional 24%. Compare that to the crash of 1929, "the largest losses to the market did not come in October 1929 but rather in the following two years."
"In December 1929, many expert economists, including Keynes and Irving Fisher, felt that the financial crisis had ended and by April 1930 the S&P500 was at 25.92, compared to a 1929 close of 21.45. There are good reasons for thinking that it...was sensible to hold most stocks in the fall of 1929 and to buy stocks in December 1929."
When all was said and done, the stock market lost 90% of it's value by 1932 (which would currently put us at a frightening Dow 1400).
"The stock price increases leading to October 1929, were not driven solely by fools or speculators. There were also intelligent, knowledgeable investors who were buying or holding stocks in September and October 1929. Also, leading economists, both then and now, could neither anticipate nor explain the October 1929 decline of the market. Thus, the conviction that stocks were obviously overpriced is somewhat of a myth."
Both Irving Fisher, one of the leading economists in the U.S. at the time, lost his entire wealth (including his house), and John Maynard Keynes, an acknowledged master of practical finance, also lost heavily.
So, what caused the 1929 stock market crash? The Pecora Commission was established to investigate the causes, and found (surprisingly?) "a wide range of abusive practices on the part of banks and bank affiliates. These included a variety of conflicts of interest such as the underwriting of unsound securities in order to pay off bad bank loans as well as "pool operations" to support the price of bank stocks."
A lot of commonalities exist between the crash of 1929 and our current market turmoil. It's interesting to look at what took place in the years leading up to both events. Both technology was advancing (Amelia Earhart crossed the Atlantic in 1928) and good times kept getting better for those speculating in the stock market.
After price peaked in 2000 and "bottomed" in 2002 the S&P500 then rallied up to resistance, forming a double top before failing. The Nasdaq of course never re-visited it's 2000-levels; instead failed to test 3000 and is currently 400-points from it's most recent 2002 lows. Meanwhile the Dow is at a precipice with a lot of poor souls praying for price to hold those 2002 lows.
Unfortunately, it also seems as though lessons were not learned from those events that led up to the 1929 stock market crash. Shady behavior, like that practiced in the early '20's by banks and loan agents, and abusive margin practices, seem to never be reigned in (or looked in to for that matter) until it's too late. We can only hope the powers that be can act in a way that will lead us to recovery, rather than the way they acted in the 1930's by contracting the money supply. After all, our Fed Chairman is a scholar on the Great Depression, so there's hope, right?

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