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(4/26/14)
After last weekend's analysis I decided to plot Inflation
Adjusted data from the S&P Composite going way back to the late 1700's as
shown below using a log scale. The black line is
an exponential line of best fit while the green line is the Inflation Adjusted
S&P Composite. As you can clearly see the S&P Composite has traded
for extended periods of time at or below the black line. However keep in mind it
has been a rare occurrence when the S&P Composite has dropped 50% or more
below the black line as represented by the blue line (points A) or risen 75% or more above
the black line as represented by the red line (points B). Thus as you can
see there is clearly defined long term upward channel.
 Meanwhile in the past 220 years the S&P Composite has only exceeded the red line
significantly twice (points C) while the other "5" occurrences stalled
out along the red line (points D). Currently the S&P Composite has
risen back to the red line once again for the 3rd time in 15 years.
 Finally for those that believe the
market is going to surge much higher over the next several years let's say the
S&P Composite doubles by 2024 which would be an average yearly return of
10%. This assumption would take the S&P Composite to around the
4000 level (point E) which is way above the upper boundary of the long term
channel. Thus this outcome seems unlikely based on past
history. 
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