Long Term Index SPX and DJIA Analysis (2Mo+)

2022年5月21日

While we all hope that the current 20% correction is just that.. a minor 20% bump in the road, it is important to look at both the upside and the downside for the markets. History doesn't repeat, but it does reverberate and have echoes of the past can be insightful. In my lifetime I've heard of the markets going up and up and up, but it is also important to be aware of the possible downturns that could be around any corner. Since the consensus long-term perspective is on growth, I'm sharing a long-term historical downturn assessment, looking at potential downside risks over the multi-month period.

Looking at the world around us, we all know very well that the following are more prevalent today than they've been in many years:

• Disruptions from viruses and diseases
  
• High levels of inflation
  
• Supply chain issues
  
• Geopolitical tension / war / uncertainty
  
• Food Shortages
  
• Easy money / credit and deficit spending
  
• Social unrest
  

I've learned enough recently looking at the list above to stop saying "that will never happen". Instead, it is an important thought exercise to look at the seemingly impossible so that you can recognize whether the current trajectory is following a historical trend, reversing, or doing something else that feels strange or out of place. It is important to not just follow the crowd regardless of whether markets go up or go down. Do your own research, make your own assessments, and then monitor the results and learn. Applying this process to the two major indices in the US, it was helpful to me to look at major corrections throughout history that are much larger than the current 20% correction that we are in right now. Since markets have cycles, time and time again, the DJIA and SPX have crashed come back months or years later. With that said, below are some good examples historically of what the largest corrections have looked like, and how corrections like those might look to us today from a percentage perspective.

Additionally, thank you to Tradingview for adding the Elliot Wave education and script options available now on the platform. They've been very helpful through this process.

Please not that this is NOT my projection, forecast, etc. - but it is an exercise in looking at downturn risks greater than those we might have seen in recent memory.

Largest SPX Corrections:
Current - 21% - 1/4/22 to 5/20/22
* 58% - 10/11/2007 to 3/6/2009
* 50% - 3/24/2000 to 10/09/2002
* 50% - 1/11/1973 to 10/4/1974
* 57% - 2/1/1937 to 04/01/1942
* 84% - 8/1/1929 to 6/1/1932
* 47% - 4/1/1872 to 6/1/1877

What would the following corrections look like? (shown on chart below)
Peak of 4976.57 on 1/4/22 - Current low of 3810.32 on 5/20/22 (20.6% drop)
* 20% drop - 3837.26 - hit this level on 5/20/22
* 40% drop - 2877.94
* 60% drop - 1918.63
* 75% drop - 1199.14
* 85% drop - 719.49
* 90% drop - 479.66

SPX - 2 Month Chart (1871 to Present) with correction levels shown

Largest DJI Corrections:
Current - 17% - 1/5/2022 to 5/20/2022
* 54% - 10/11/2007 to 3/6/2009
* 41% - 8/25/1987 to 10/20/1987
* 46% - 1/12/1973 to 12/6/1974
* 51% - 3/9/1937 to 4/27/1942
* 89% - 8/30/1929 to 7/11/1932
* 46% - 11/3/1919 to 8/24/1921
* 49% - 1/19/1906 to 11/15/1907
* 46% - 6/18/1901 to 10/14/1903

What would the following corrections look like? (shown on chart below)
Peak of 36799.66 on 1/5/22 - Current low of 30635.76 on 5/20/2022 (16.7% Drop)
* 20% drop - 29439.73 -
* 40% drop - 22079.80
* 60% drop - 14719.86
* 75% drop - 9199.92
* 85% drop - 5519.95
* 90% drop - 3679.97

DJI - 3 Month Chart (1897 to Present)

2022年5月21日

ノート

Correction on the peak from SPX on 1/3 instead of 1/4. The peak was also 4796.57 and not 4976. The individual charts and percentage drops are correct though.

Thanks for the feedback.