I’m continuing with the hypothesis that there are a lot of similarities to the 2003/2004 market that might help predict the future action of the market. Clearly volatility is higher now than the 2003/2004 period, and the transition from upward trend line to a sideways market has been scarier–but these are scary times. Looking back at 2004, the market went into a slightly declining trend, the highs and lows decreasing a slight 0.25 point per month. The range between the highs and lows was about 4.5 points. I can imagine, looking at the graph that we have touched the bottom line of the 2010 trend line, which is about 5 points below the 2004 bottom line.
Will the market come roaring back and challenge the 2004 top trend line, or will the old bottom become the new top? With higher volatility I would expect the range to be wider, but I would be surprised to make it all the way back to the 2004 top trend line. I’m guessing we’ll see around 112 to 113 as the top.
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