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Eerie Charts

Eerie Charts
February 21, 2009

Given the market's rapid decline from the highs of October, 2007, I was curious how the chart compared to the other Great Decline.  Of course I am talking about the Crash of 1929.  The chart below shows a direct percent loss comparison of the Dow Jones Industrial Average beginning with the date of the market high. 

For the red line, the starting date is Sept 3, 1929, when the Dow closed at 381.20.  For the blue line, the data begin on October 9, 2007, with a Dow close of 14,164.53.  Each data point after the start date shows the market's percent decline from the high.  The X-Axis is trading days since the high was reached.

For reference, we are now 344 trading days into this bear market (about 16 months).  The Dow is down 48% from that high.  In 1929, if we go out the same time frame from the high, the comparable date is 1/20/31, for a Dow decline of 56.5%.

The relationship I did not expect is very clear on the first (01) chart.  The gray arrows track the general trend of each market, since the top.  Notice how eerily similar the markets have traded.  Discussion of each arrow:

1.  After an initial decline, the markets both bounced by the 100th day.  The 1929 sell off was much quicker and steeper, and bounced around day 50.  The current bear initially fell more gradually, and took the full 100 days before a meaningful bounce happened.

2.  Following that first bounce, both markets topped out at almost exactly the same time, around 150 days.  This was remarkable to me.

3.  The third arrow shows the harsh sell-off in both markets from 150 to 200 days.  These were sharp and painful, and caused the current bear to fall to new lows.  The 1929 chart (red line), nearly touched it's initial low.

4.  A very weak rally came next, lasting about 50 days.  By this time, the pattern of lower highs was clear to everybody actively in the markets.  The lower highs concept is from Dow Theory, and simply means that the market failed to move up past a previous high price.

5.  The final leg on this chart is the steepest.  From around day 250 through the current 344, the market has sold of solidly, reaching new lows in both charts.

The second graph I've attached shows the full culmination of the 1929 bear market, which lasted 34 months.  If we were to compare the current market to the 1929 chart, we are about half way through.  This is not to say that the market can't bounce from here, especially since we are at some long term support.  I'd love to see a bounce.  But realistically, we have to understand the past to see how this could possibly play out.

Be careful in this market.

Dan Grill