Saturday

1929 Stock Market Crash Analysis

Post a Comment January 24, 2009 – 11:45 pm |   | Permalink |  Print This Post |

The continued weakness which broke through supports and saw lower lows on Friday (unexpectedly) makes us go back to our charts and drawing table to re-analyze the markets. Sentiment is down again, the financial sector is making new lows triggered by further bad debt, losses, and rising unemployment. News headlines say Britain is officially in recession (Ask anyone living there, they can tell you this few months ago) - the media is trying to push the markets lower. Soon, they would only put GOOD NEWS on the front page. Do not listen to what you read - we suspect the media will publish whatever news that suits the market (ie if markets go down, they put up the bad news, if markets go up, they find good news and put it up on the front page even though the number of bad news are constantly overwhelming the good). Even though it is impossible to predict the future using historical data, we feel that the uncanny similarities between now and the Great Depression warrants a closer look.

Dow Jones October 1929

1929-stock-market-crash-chart

The evolution of the Great Depression can be broken up into 8 large waves - the first of which saw the Dow lost about 49% of its value over 23 days in October 1929. Not many would suspect that it was only the start of greater carnage - the Dow eventually lost 89% of its value over 3 years (386.10 to 40.56). Between the first and second fall the Dow made a 51% recovery (195.35 to 297.25) - peaked at April 1930 before making the next move down. Interestingly, in Dec-Jan 1929-30 (same period as now), the Dow recovered by about 25-28% (about the same as now). Many would have called the October 1929 low of 195 “the bottom” only to get decimated by the continued weakness over the next 3 years. This time around, our low was registered on Nov 2008. The main difference is, in 1929, it bounced off the low of 195 and stayed significantly above that low. We are only about 6% above November lows - this is much lower  than the pull back in 1929 - which stayed at least >10% above the October lows. Are we heading lower already - ie that was the end of the wave up? Possibly. There are serious flaws in our economy which many say are worse than during the 1929 Stock Market Crash. Our indicators suggest more recovery, but our battered psychology is wearing thin (most have just given up hence the fall in demand indicators). We will reanalyze our numbers and report back before markets reopen tomorrow. 

Dow Jones 1929-1933

1929to33chart

If you view the charts in the 1929 Market crash in a larger time frame, notice how insignificant October 1929 Stock Market Crash becomes.

Charts by technicalanalysisbook.com.