US Stock Markets: 20-Year Monthly Charts Revealing The Bottom

Pausing to take a longer historical view is wise these days. I just spent the last several hours doing so, making friends with the 20 year monthly chart and indicators of major indexes (S&P500 (^GSPC), DJIA (^DJI), etc). If we do not bottom here at key historical support, we’re going to hell for certain. Here’s what we have to consider:

1. The current market is significantly under the 100 day and 50 day monthly moving averages, suggesting we have gone far enough and will continue to base here as the economic issues of the world continue rattling everyone’s cage for the next year or so.

2. Take a look at your Volume By Price and Accumulation/Distribution indicators on the 20 year monthly chart. Volume By Price shows substantial UP volume at this 805-857 “did we hit the bottom yet” level. Am I wrong or this quite strong for the bulls? Again, suggesting we’re staying put right here while this mess slowly cleans itself up. No further plunge.

3. The monthly slow Stochastic is our contrary indicator, showing the current market very oversold for just a bit more than six months which means we’re just getting started down the slope. Let’s look at the historical readings:

a. Stochastics Overbought reading during the ’90’s lasted over 5 years.
b. Stochastics Oversold reading during the 2001 - 2003 bear market lasted over 2 years.
c. Stochastics Overbought reading during the 2004 to 2008 bull period lasted about 4 years.
d. Stochastics Oversold current reading is only six months old, which means this bear is just getting warmed up. A quick look at Williams %R (20) tells the same story.

Note the single dip in late 1998. Maybe the market will mercifully give us one or two of those, keeping the Stochastic Oversold longer as the market forms the bottom base here with a couple of scary rollercoaster rides down and back up, avoiding the big plunge.

I’m a realistic bear, wanting to believe the market will go much further down so we can start rebuilding in the next true bull market. That’s what I think “should” happen. Yet it is a reasonable scenario that the market will slowly and painfully form a base here for the next six months before resuming upward. A number of site gurus have noted this recent growing bullish sentiment has them mostly in cash or starting to cautiously go long a bit here and there, also against the continuing plunge they think “should” be happening.

The last perspective to consider is that this new global economy bear did already happen, swift and hard, and so the observation of Stochastics staying oversold for at least 18 more months is irrelevant in this new world of new rules. If Stochastics and Williams %R follow the same pattern we see in the 20 year Monthly chart, then we have to plunge down from here to next lower support around DOW 6000. Current bullish UP volume by price says that is not going to happen. And finally, even the bulls won’t be able to withstand the pressure if more and more bad economic news keeps coming in as expected in the coming two to three months. As a good friend recently said, cautious and nimble.

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