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Below, is a
rainy day curve fit of the DJIA annual data back to 1940. The procedure used is
to first take the log10 of the data, detrend that with line fit, and then
fit an arbitrarily chosen 36 year sine wave to the detrended data. The resulting
curve is then plotted a few years forward.
This curve fit isn't useful for short-term trading, but more of a "if
history repeats itself" study. Per this study, the market should've been shorted
in 2003, and should be re-bought in 2013. It would have been a little painful to
hold that short as it would've had roughly a -30% drawdown (so far). Given
the current economic backdrop, the idea of the market being flat to down for a
while, doesn't seem out of the question. Per this study, the market will be
roughly -25% lower from the current price before hitting its low in 2013.
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