Market Patterns Repeating 11.17.10  

A Review of 1929 Shows parallels with Current Position

Richard Russell

The ups and downs of the stock market during the Great Crash of 1929 seem to be repeating.

During the great crash of 1929, millions of investors lost heavily. Many participants lost everything they owned -- they were left destitute. It was so bad that Americans, in their defense, turned some of the horror into humor. Books of ironic humor were published, one of which was "Where are the Customers' yachts?" Talk of investors jumping out of brokerage house windows (mostly not true) were prevalent. "So and so was so crooked that when he died they had to screw him into the ground." The Industrial Average, which had begun its descent on September 3 at a value of 381.17, crashed to a low of 198 in November of 1929, all along accompanied by record volume. Tens of millions of dollars were lost, and crowds filled Wall Street as the horrific drama unfolded.

Then the unexpected occurred. The stock market turned up in November amid cheers from the anxious crowd. The Dow and the Rails hit secondary highs in late-November, and then backed off, only to hit lows a month later in December. In January the market started up again, and when the November highs were bettered by both Averages, many took that as a sign that the bull market had come alive again. Thousands of investors rushed back into the market, hoping to regain some of the losses they had suffered in 1929.

The market roared higher all during the first quarter of 1930: The Dow plowed steadily higher as confused shorts were driven to the wall. By April 1930 the Dow had climbed to 294.07, having recovered better than half of its crash losses.

In April of 1930 the market turned down as the bear took over once more. After April the bear market resumed with a fury. The extended and erratic bear market continued until July of 1932. The great bear market ended in July with the Dow at the incredible value of 41.22.

As I review the events of 1929-1930 I wonder whether we're not seeing the same scenario again. Recently we had the crash of October 20-07 to February of 2009. Next came the rally to April of 2010, then a decline to July, and most recently a resumption of the advance with both Averages rallying past their April peaks and into November.

When the April peaks were bettered by both Averages, many analysts mistakenly took this action to be a resumption of the bull market. The public, many hoping to recoup their 2008 losses, came back to the market in en masse. Volume surged, actually surpassing the earlier volume of July and August.

Then, very recently, something gave way; something cracked wide. On November 12 the Dow dropped 90 points. On November 16, instead of the expected rebound, the Dow plunged 178 points.

Seemingly, from out of "nowhere," we saw two 90% down-day in a space of three days, (Nov. 12 and Nov. 16).

Source: Richard Russell

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