September 7, 2009: The Dow has rallied strongly from its March 2009 lows and people are getting cautiously optimistic. So we decided to look at 1929 and saw same price action in the current fall, only in slow motion.
We at Capture Trends are neutral to market trends, but a repeat of the great depression of 1929 is something that no one wants. Not only does it destroy wealth but markets become thin, hampering trading as well as future economic growth.
Now let us look at the charts and show you what we saw. Please click the link at the bottom of this report to view the charts. We also recommend reading our earlier report comparing 1929 with the current fall
The first down movel in 1929 was 49%, which it took 10 weeks. This time the fall is nearly 55% and it took 73 weeks. The fall now is much slower. During the first fall in 1929, the market had a correction of 12% that lasted for two weeks. This time the correction was 13% and lasted 14 weeks. The rally now is much slower too. In the current fall we had another minor correction of 9% and some consolation shown by the blue ellipse in the chart of 2009. The corrections and consolidations are to be expected when the market is falling over a long period of 73 weeks.
After the first sharp drop in 1929, the markets had a bear rally of 52% that lasted 22 weeks. This time too we are having a rally in the Dow that is now at 48% and 25 weeks old. During the great depression the Dow rallied to an area of prior consolidation and then fell sharply to continue its downward journey. The area of consolidation is marked by a blue box in chart of 1929. The consolidation is on the left of the chart and the blue box is extended to the right to show how the index reached that area and fell. Remember that the index fell nearly 90% in 147 weeks during the great depression.
The Dow is now very close to an area of consolidation as shown by the blue box in the 2009 chart and index has rallied 48%. If the market moves into the blue box, it will be touch the 52% bear rally level achieved in 1929.
Rationale for slow motion
We believe that the market will do what it has to do. Markets can be diverted off its normal course by government action, but will eventually continue its journey. We feel that the market fall was slowed due to the various actions by the Federal Reserve (easy money) and the government (fiscal stimulus). But over the longer time frame the Dow is doing exactly what it did in 1929.
We hope not to see a repeat of 1929. Perhaps the market may not make go lower than its March 2009. But the charts are not showing us that. At the very least we will not trust the current rally.
Chart of 1929
Chart of 2009
