Is This Market Rally Too Overbought to Trust?
While the optimists, pessimists and realists argue about whether the rally has gone too far (or is 'fake' because of government intervention) … opportunistic traders have enjoyed the ride.
So how far and long has this rally really come? Despite all the worrying, objects in the rear-view mirror may be closer than they seem.
The graphic (below) from Chart of the Day, puts over a century of market rallies in context.
As the Dow Jones Industrial Average flirts with post-financial crisis rally highs (and the 13,000 level), it may seem as if the current market rally has grown long-in-the-tooth …
Nonetheless, history says rallies can go much longer and higher than this.
To provide some perspective to the current Dow Jones market rally that began back in early October 2011, all major market rallies of the last 111 years are plotted on this chart. Each dot represents a major stock market rally as measured by the Dow.
As the chart above illustrates, the Dow has begun a major rally 28 times over the past 111 years which equates to an average of one rally every four years.
Also, most major rallies (78%) resulted in a gain of between 30% and 150% (29.8% to 150.5% to be exact) and lasted between 200 and 800 trading days (9.5 months to 3.2 years) — highlighted in this chart with a light blue shaded box.
As it stands right now, the current Dow rally (hollow blue dot labeled you are here) would be classified as well below average in both duration and magnitude.