The Dow Jones Industrials has a very interesting long term chart, particularly the +20 year chart. Between 1998 and 2011, the Dow Jones traded in a sideways pattern, while before and after that period it was in a secular bull market. It is not really fair to say that the stock market is in a bubble right now, although, on a shorter time frame, a bubble view could be visible. Consequently, many believe another aggressive stock market crash is near! This is what the Dow Jones long term chart on 20 years reveals to investors: As November 2019 kicks off we also have a bullish forecast for the Dow Jones for both 2020 and 2021: A bullish Dow Jones Forecast For 2020 And 2021 with a price target of 32,000 points in 2020.
[Post Corona Crash Update posted on August 23d 2020. Please scroll to the bottom to find the most up-to-date Dow Jones chart on 20 years with other up to date Dow Jones charts.]
[Corona Crash Update posted on April 27th 2020. Please scroll to the bottom to find the most up-to-date 20 year Dow Jones chart, one month after the Corona crash lows. The conclusion from the 20 year Dow Jones chart as it relates to the Corona crash: the 2009 bull market uptrend may be broken, but that is not necessarily a problem as this uptrend is only slowing down (there is still an uptrend though).]
[Corona Crash Update posted on March 20th 2020. Please scroll to the bottom to find the most up-to-date Dow Jones long term chart on 20 years after the Black Thursday and Black Monday crashes in March of 2020.]
[Ed. note: on November 4th 2018 our editorial team added an update in this article. Please scroll down to find the most up-to-date Dow Jones long term chart on 20 years after the October 2018 mini-crash.]
Introduction
Most investors have the perception that the 2000 and 2007 tops were followed by bear markets. While that is correct from a tactical perspective it is much more ‘nuanced’ from a secular perspective.
That is why it is always recommended to look at long term charts. The Dow Jones Industrials is no exception, its long term chart shows a different picture than the shorter term charts. The longer time frame reveals much more than the short term time frames. Especially the Dow Jones long term chart on 20 years has some great insights for investors.
Dow Jones long term chart on more than 20 years
The general perception and feeling is that 2007 was a long term top for stock markets. While that is true, from a secular perspective, on a very long term chart, we observe a sideways pattern. Moreover, on the chart below we see a textbook ABCD pattern. What does that mean to investors?
Markets typically move in an A-B-C-D pattern. AB is an upleg, BC is a retracement and CD is another upleg. The following image makes the point (source). The above chart shows an AB upleg until 2000 and a BC retracement between 2000 and 2009. Next, we see an upleg after 2009 (with a real breakout since 2012/2013). So the last CD upleg has started only 3 years ago.
That implies that the potential upside is still considerable. Typically, the legs AB and CD are similar in length.
Although we are not pretending that the Dow Jones will soon trade at 40,000, there will probably be a day that it will be that high, unless things have changed drastically in markets, which we don’t exclude neither.
Obviously, stock markets will correct sooner or later. Our point of view is that the current upleg will be stopped in 2017, but the correction is likely to be a blip on a very long term chart. Look at the 1991 or 2015 crashes, those also look like a small blip on the long term chart.
Dow Jones long term chart on 20 years (chart update: November 2019)
This paragraph and below chart contain an update of the Dow Jones long term chart on 20 years. We wrote this update on November 4th 2018, almost 2 years after this post was published, as a followup on the Dow Jones long term chart on 20 years findings outlined above.
Especially the October 2018 sell-off in stock markets was vicious. So far, though, the October correction did not damage any long term uptrend. On the contrary, the chart below shows that the uptrend is still intact.
At this point in time the Dow Jones Industrials Index did set a higher low against the February 2018 lows. As long as those lows are respected there is no reason whatsoever to be concerned on the long term uptrend of the Dow Jones Industrials Index.
Case in point: the ‘risk off’ cycles are nicely represented on this chart. They coincide with the ones on the Russell 2000 chart which we have covered extensively on our blog. After the 2018/2019 ‘risk off’ we will see a strong rise going into 2020 and 2021. That’s what this 20 year Dow Jones chart suggests.
Note that this chart also provides more depth into the Dow Jones 100 year chart! As per our investing method we always have to take a top down approach to analyzing markets. The highest timeframe for the Dow Jones is the quarterly chart on 100 years. Looking at the chart, especially the green circle annotated on that chart (click on the link mentioned before to go to our article) requires more detail which is what the 20 year Dow Jones chart outlined above offers.
Dow Jones long term chart on 20 years: the line in the sand
As said in the previous section we strongly believe that the February 2018 lows are the line in the sand. In particular, the 23,000 to 23,500 area in the Dow Jones Industrials Index is, by far, the most important area to watch.
Any monthly close below this area, as well as 3 to 5 consecutive weeks closing below this area, will be a major red flag for U.S. stock markets as well as global stocks.
As long as the ‘line in the sand’ area is respected we may see a continuation of the long term bull market that may have started in 2013.
In other words, the Dow Jones long term chart on 20 years learns that this ongoing bull market (1) may have started in 2013 (2) as long as it continues it might play out similarly to the early 90ies. As seen on the chart above there was plenty of upside potential in 1991. That was a very volatile year, admittedly, but in the bigger scheme of things it did represent a small blip, hardly visible, and a massive buy opportunity.
We are not pretending that we are today in a similar situation as in 1991, but it might be. The point is this: as long as the Dow Jones Industrials continues to make higher lows we are in a bull market. That’s an insight that is based on the long term pattern, and that’s why the Dow Jones long term chart on 20 years is so important, is negates the short term ‘feeling’ or ‘perception’ that an investor might have. It also neutralizes the strong emotions like fear for another 2009-alike stock market crash.
Long term investors are recommended to continue to monitor the Dow Jones long term chart on 20 years to stay on par with the long term trend, and check this once or twice per month, as part of their rituals and research.
Corona Crash Update on March 20th, 2020
This paragraph and below charts contain an up-to-date version of the Dow Jones long term chart on 20 years. We wrote this update on March 20th, 2020, at the depth of the Corona crash.
First the 13 year chart.
Clearly the Corona crash was unique in that it was a faster decline than the 2008 crash in terms of speed. The Dow Jones long term chart has 4 sub channels as part of its 100 year rising channel (light green with the red resistance trendline at the top).
With the Corona crash the Dow Jones fell from the top of the channel to the lower channel.
The monthly closes now will be important: if March 2020 and/or April 2020 does not end back in the highest sub channel, this index may only bottom in the 16,600 area at a later point in 2020. However if this index is able to close March and/of April in the 22,400 area, regardless of how deep if fell intra-month in March (below 20k points) then we may continue to move in the highest channel.
The 20 year Dow Jones chart puts the one above into perspective.
The Dow Jones now ‘hangs’ above 2015 support and below 2018 support. Both areas will act as support and resistance in the next few weeks and months. This chart confirms the findings from the above chart: if this index is able to close March and/of April in the 22,400 area, regardless of how deep if fell intra-month in March (below 20k points) then we may continue to move in the highest channel.
Last is the 33 year chart that also shows Black Monday in October 1987.
The big difference between 1987’s crash and the 2020 crash is that back then it happened at the bottom of the 100 year rising channel. The 2020 crash happened at the top. In other words there is plenty of downside. Obviously central banks will never allow a crash to the lower areas of this 100 year channel. But it puts the 2020 Corona crash into perspective.
All findings from the above chart are valid on this longer timeframe.
Additionally we would add that the yellow topping pattern (half rounded yellow pattern on the above 2 + below charts) might imply a bearish reversal on the long term timeframe.
Corona Crash Update on April 27th, 2020
This paragraph and below charts contain an up-to-date version of the (very) long term Dow Jones price charts as well as the 20 year Dow Jones chart. We wrote this update on April 27th, 2020, one month after the depth of the Corona crash.
Let’s first start with the up to date 12 year Dow Jones chart.
This looks a lot like a bullish V reversal. Note how price is now back into the yellow rounded reversal pattern, and more important how it is back in the highest of the 4 channels.
The Corona crash is seemingly shaping up to become a one off type of event. An outlier. An important one, but one that only temporarily created havoc.
Most likely the monster monetary and fiscal stimulus from governments all over the world is offsetting the potential bearish effect of the Corona market crash.
Next, the 20 year Dow Jones chart, updated the end of April of 2020.
The above observations on the shorter term chart are confirmed on the 20 year Dow Jones chart:
- Price only moved for a few weeks into the lower channel.
- Price is back up into the highest of the 4 long term channels.
- The Dow Jones is set to rise unless it falls below 22,000 points.
- The 2009 uptrend may be broken, but that is not necessarily a problem. It just indicates that the uptrend is slowing down, but there is still an uptrend.
The last bullet point is probably the most important one when it comes to the message of the 20 year Dow Jones chart as it relates to the Corona crash.
The longest term timeframe does not reveal any new insight against the other 2 Dow Jones charts featured above. All the conclusions apply. On this long term Dow Jones chart the Corona crash looks a lot like the 1987 crash: just a blip and great long term buy opportunity.
According to us the Dow Jones index will move to the top of its 30 but even 100 year channel somewhere in the next 24 months.
Follow our work, or become a premium member, to follow us on the ride to the top of the long term channel.
Post Corona Crash Update on August 23d, 2020
This paragraph and below charts contain an up-to-date version of the (very) long term Dow Jones price charts as well as the 20 year Dow Jones chart. We wrote this update on April 27th, 2020, one month after the depth of the Corona crash.
The 20 year Dow Jones index chart starts looking very constructive again.
First of all, the index is back in its 2009 uptrend channel. This is breaking news, even though not a lot of commentators are talking about this. We are ‘back on track’ after 3 months below the 2009 uptrend.
Second, even though the formation is bullish again, there is a bearish topping pattern that has to be taken out now. So current price levels at the time of writing are crucial.
Will the Dow Jones index succeed in moving higher? Most likely yes, the only question is when. That’s why we need the daily chart, with shorter term analysis. Whatever happens around 28,000 points will be critical. It’s the line in the sand for our Dow Jones forecast, and the 20 year chart will not be the most appropriate one to track this.
