The Eight Scariest Charts For Equity Bulls
It would appear Mark Twain's infamous quote that "history does not repeat, but it does rhyme" has never been so apt. The following eight charts suggest the rhythm is getting louder and louder. How is it possible? It's nonsense? Well at the heart of the markets, it is still us humans and our endearing greed, fear, and heuristic biases that drive the flows... trade accordingly.
The current price action in the S&P 500 is eerily similar to the movement leading up to the collapse in 1987... (via Bloomberg)
The Dow is also tracking this move almost perfectly over the last two years...(via Citi)
The next three charts are particularly concerning...
Here is the Dow leading up to the 1987 drop - showing its distance from the 55-week average and the collapse once it crossed... (via Citi)
here is an unnamed stock's price action (percentage change) over the past three years...(via Citi)
and AAPL's price appreciation from the lows in 2009 and its 55-week average...(via Bloomberg)
It's not just 1987... Here is the Dow analog again the 1977-78 period and 1905-1910 period... (via Citi)
and the Dow Transports are playing out a very similar pattern to the 1960s-70s... (via Citi)
And a Bonus Chart - for those who prefer to look at Bond Analogs... Here is the current move in 10Y US Treasury yields overlaid on 1992's movement... spooky no? and somewhat fits with a view of weakness into year-end, downgrade on debt-ceiling and collapse... (via Citi)
Machiavelli accounts for this 'repetitive' oscillation by arguing that virtù (valor and political effectiveness) produces peace, peace brings idleness (ozio), idleness disorder, and disorder rovina (ruin). In turn, from rovina springs order, from order virtù, and from this, glory and good fortune.
Machiavelli, as had the ancient Greek historian Thucydides, saw human nature as remarkably stable - steady enough for the formulation of rules of political behavior. Machiavelli wrote in his Discorsi:
Whoever considers the past and the present will readily observe that all cities and all peoples... ever have been animated by the same desires and the same passions; so that it is easy, by diligent study of the past, to foresee what is likely to happen in the future in any republic, and to apply those remedies that were used by the ancients, or not finding any that were employed by them, to devise new ones from the similarity of events.
“Everything that needs to be said has already been said. But since no one was listening, everything must be said again.” — André Gide
Charts: Citi and Bloomberg (as marked above for clarification - not all charts are sourced from Tom Fitzpatrick of Citi)