Thursday, March 22, 2012

Inflation Adjusted DJIA

The chart below shows the inflation adjusted Dow Jones Industrial Average 1925 - 2010.

There are a lot of lessons to glean:
  • While the corrections in 1929 and 1964 were of equal magnitude, the latter took much longer to play out.
  • The 1960’s top (previous resistance) acted as support and repelled prices to initiate the spring rally in March 2009.
  • The Dow trades at less than twice where it closed at the 1929 top.
  • After more than 40 years the Dow is only trading a trifle 30% above its 1964 peak (inflation adjusted).
  • Finally, the Dow managed to rise 31% since the spring rally in March 2009 - that is amazingly a pinch more than the gain from the top in the 1960’s.
  • The Dow has traded in a very wide and rising trading range - so if you are really really pessimistic, you could say we are headed to 4000 (eventually)