MLR - 1907 vs 2011

Published : September 29 2011 at 8:46 ET

While we do not like to put too much importance into chart pattern similarities, history, while it does not repeat, does often rhyme.

The chart below shows the market from 1/19/06 - 9/25/11 and from 10/9/07 - 9/20/11.

While the charts do appear similar so far, times were quite different between then and now so it would be a mistake to assume that the pattern will trace out in similar fashion. As always, it is best to monitor buying and selling pressure by way of price/volume action in the major indices and leading stocks on a real-time basis.

The earthquake in 1906 led to insurance claims in 1907 which created massive burden to insurance companies that set off the panic of 1907. The market then recovered and enjoyed a bull market until the start of 1910 when recession began and stayed until the end of 1911, or nearly two years.

The correction which started in August 2011 could be the market telegraphing that a global recession has started since markets are often  forward looking by 6 to 9 months when it comes to recessions.

Thanks to Cyrus for providing the chart.

PS: The three stocks I will be mentioning as potential long plays today on CBS Portfolio Doctor are PCLN, CMG, and HANS, though I personally would not buy any of them in this environment. That said, some people who watch this show cannot short and might also be longer term holders of stock (out to years).

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