Dow Jones Industrial: Does the Past Offer Hope?

After the horrid US data released this morning, there are plenty of reasons to believe that the equity markets including the Dow Jones Industrial Average are headed lower. We have argued that the next string of GDP reports will finally reflect the recessionary conditions that Americans are already feeling. However in every battle there are signs of hope. Here is a very interesting chart published by Barclays Capital this morning. They compare the current equity market movements to that of the “Panic of 1907.”

The similarities are striking. In 1907, the last leg lower in the Dow was the 37% decline that lasted from the second quarter to the fourth quarter. So far this year we have only seen a 34% decline from the August high of 11867 to the October low of 7882. Another 3 percent decline would bring the Dow down to 7475.

DOW 1907

The price action in the Dow in 1907 suggests that there could be one final push lower in equities before a long term bottom and when a rally does happen, it could be as much as 20 percent. Afterward, expect a long phase of consolidation. Back in 1907, there was a 15 year consolidation before the stock market picked up once again and we entered the Roaring 20s.

Here’s a chart of the Dow from 1900-2004.

DOW 1900-2004 Chart

Photos: Barclays Capital | Minyanville

About Kathy Lien 236 Articles

Kathy Lien is an Internationally Published Author and Chief Strategist of DailyFX.com, one of the world’s most popular online websites for currency research. Her trading books include the highly acclaimed, Day Trading the Currency Market: Technical and Fundamental Strategies to Profit form Market Swings (2005, Wiley); High Probability Trading Setups for the Currency Market E-Book (2006, Investopedia); and Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game (2007, Wiley). As Chief Currency Strategist at FXCM, Kathy is responsible for providing research and analysis for DailyFX, the research arm of FXCM. She also co-edits the BK Forex Advisor, an Investopedia.com Premium Service with Boris Schlossberg – one of the few investment advisory letters focusing strictly on the 2 Trillion/day FX market.

Kathy is also one of the authors of Investopedia’s Forex Education section and has written for Tradingmarkets.com, the Asia Times Online, Stocks & Commodities Magazine, MarketWatch, ActiveTrader Magazine, Currency Trader, Futures Magazine and SFO. She is frequently quoted by Bloomberg, Reuters, the Wall street Journal, and the International Herald Tribune and has appeared on CNN, CNBC, CBS and Bloomberg Radio. She has also hosted trader chats on EliteTrader, eSignal and FXStreet, sharing her expertise in both technical and fundamental analysis.

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