March 1980

Note:  The historical chart example given below is for EDUCATIONAL USE ONLY.  It is NOT to be used to make buy/sell decisions in today's market.  For more information, please read the HSR Terms of Use.

Background behind the 1980 Uptrend:

In January 1980, the S&P 500 hit a 7-year high. 

All looked well, but by mid-February, the S&P 500 was promptly turned back at its 1973 all-time high.

The S&P 500 fell 20% in 7 weeks and undercut its October 1979 low.

The Dow Jones Industrial Average turned in a similar performance. 

In February 1980, it surpassed resistance from September 1978, but it wouldn't last.  

Like the S&P 500, the Dow declined 20% in 7 weeks and bottomed after undercutting its March 1978 low.

The 1980 Correction demonstrated two principles of markets:

1.  Markets like to fool the majority

The market will often move in a direction to get investors committed to stocks (long/short) before the real move is revealed.

This usually involves taking out old highs (and lows), which calls attention to the market at exactly the wrong time.

In February 1980, the Dow Jones Industrial Average took out its September 1978 high before dropping 20%.

2.  Markets wear or scare you out

The market may enter into a prolonged consolidation that takes the attention away from it or move swiftly lower to scare out investors. 

Scaring out investors often involves undercutting a prior swing point low.

This negative price action gets many to capitulate and wash their hands of the stock market.

We saw in May 1970 that markets tend to bounce after prior lows are taken out (1966 Low).

In late March 1980, the Dow Jones Industrial Average also bottomed after undercutting its March 1978 low.

Sometimes a market may bottom if just one of the major stock averages (S&P 500, Dow Jones Industrial or Nasdaq Composite) undercuts a major low.

The 1980 Uptrend also taught us two (2) lessons:

A.  Base Breakouts Delayed

The swift downdraft from February to March '80 took many stocks down hard and this caused a lot of technical damage. 

At the time, the 7-week dive was one of the fastest declines in the market's history.

Many of the base breakouts that usually occur off a market bottom were delayed until May/June 1980. 

After the late March 1980 Bottom, stocks spent the first 4-6 weeks repairing the damage from the correction before they exerted their leadership.

B.  V-Shaped Patterns

Because of the V-shaped move (down and straight up) in the market, there were many V-shaped bases in individual stocks.

This is important to understand because a V-shaped base is often seen as a faulty pattern, but if it's caused by a market correction, it's okay.

1980 Market Bottom:  Dow Jones Industrial Average

Please click on the links below to see some of the base breakouts from the 1980 Bull Market:

Note the strong group leadership from the Oil & Gas and Semiconductor stocks. 

These groups were important to the uptrend and their downfall in late 1980 was an early warning sign ahead of the 1981-1982 Bear Market.