Tuesday, June 29, 2010

The 1930 Stock Market vs the 2010 Stock Market - A Visual Comparison

Given the absolute beatdown we are seeing today on Wall Street, this post could very well mark the bottom of this pullback, but even so, I thought I would share.   I've been thinking a lot recently about the economic situation we are in and how it compares to past situations that were similar - namely the 1930's in American history and the 1990's in Japan.   The charts of Japan and our current market didn't match up exactly, but using Telechart's "past chart" feature, I was able to look closely at the 1929-1930 stock market and our current market.   To be honest, the correlations were somewhat scary.

Here is a chart that shows the percentage gains/losses of the major rallies and pullback seen in 1929-1930 and in 2008-2010.

Index Dow '29-'30 Dow '08-'10 S&P '08-'10
First Bear Market -49.40% -53% -57%
First Reflex Rally 52% 70% 83%
First Real Pullback -15% -13% -14.7
Second Reflex Rally 10% 8.50% 8.75%

Are the percentages identical?   No (our recent reflex rallies were stronger but lasted longer), but they are a little too similar for my liking.   The scary part of this comparison is easier understood when looking at the charts.   Check them out below.

There are slight differences on those charts and one main difference - the time frame.   The first part of the epic bear market of the 1930's took place much quicker - that's why 1929 was labeled as a "crash".   Our bear market lasted for more than a year, but the percentage losses were similar.   Is history repeating itself?  Only time will tell, but if these comparisons continue to align, the chart below shows what we may have to look forward to in the upcoming years.  I am not an economist, but there are quite a few macroeconomic similarities between the late 1920's/early 1930's and today as well. 

All Charts from Telechart, Courtesy of Worden Brothers.

I have been longer-term bearish for some time now but on the shorter and intermediate-term time frames, I have been bullish at various times.   As I look at these charts and the action in the market now, I am starting to believe that we could be starting the second big wave of the bear market.  I have no way of knowing for sure, but for my trading, I will be staying away from longs for the foreseeable future until we get clear confirmation that things are going to be OK and that this market wants to move higher.   Shorting or cash remain the only smart places to be in this environment.

This weekend, I posted some long candidates to watch.  I was expecting the bulls to put up at least some fight after being knocked down four straight sessions last week.   They did nothing.   They are extremely weak right now and today is proof of that.   I don't know that I would short here, but I am certainly not going to be playing around with longs right now anymore.   Caution and patience remain key here.  Good luck.


Anonymous said...

How does 666 10 1219 equal 41% of gains?


Mac said...

Sorry - didn't catch that mistake before making those charts. I fixed the numbers on the charts and spreadsheet. Thanks for pointing it out.

tiny74 said...

Your comparisons are impressive. Have you done any more recent ones. Namely with regards to the behavior of the past few weeks.