A year ago, anyone who had studied financial history should have been prepared for trouble, even if history had few precedents for the disaster that ensued.
Now, the precedents are ambiguous. Some indicators that flashed trouble before the crisis now suggest it could even be time to buy. Others are contradictory. Even so, history may be our guide, so it is worth looking at the precedents.
There are two broad ways to gauge the market’s future from the past. One focuses on valuations or the fundamentals – metrics that have showed that stocks are particularly over or undervalued over time. The other focuses on price patterns, known as chartism or technical analysis.
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