Wednesday, October 15, 2008

Scary Pictures

Here’s a chart of the Dow Jones:

Here’s another chart of the Dow Jones:

The 1st one is 1929. The 2nd one is 2008.

They sure look a lot alike to me.

On Wednesday the S&P dropped 9%. It was the 3rd time in less than a month that it dropped over 7.5%. Since my S&P data only goes back to 1960, I checked out the Dow to see if it had ever dropped 7.5% 3 times in one month. It had. Once. In the 1929 picture you see above. While history never plays out exactly the same I’m sure everyone is wondering how the current picture resolved itself in 1929. Was the initial crash low broken?

Answer: Yes. The current period compares to the beginning of November in the 1929 chart. There was one final leg down before a sizable rally ensued that lasted well into 1930.

Of course if we zoom out a bit more…

This is not a quantitative study. It is not a commentary on the state of the economy or the action of the government. It is definitely not a prediction. But if you thought there was no way it could get much worse from a long-term standpoint…well…it could.


Anonymous said...

Indeed scary, but please also draw a daily candle chart with the last day as Oct 26 1987, can't we see same patten?

Anonymous said...

very little correlation with 1987. 1987 began and developed because of overtrading with programs and not enough liquidity to manage that trading. the economy was still fairly sound so the recovery was quick (3 months).

current markets are reeling from a real estate and credit bubble that burst, and drained money from the economy. in 1987 the market was the cause of contraction, in 2008 the market is the effect of contraction

gamingthemarket said...

After the Great Crash, Congress enacted legislation designed to make our markets transparent. The same legislation created the Securities and Exchange Commission. As money flows from the regulated market to the unregulated market, we are now recreating the conditions that existed immediately before the Great Crash.

Read more at:

John said...

Possibly more dangerous now as there is less friction in "information" about the market - which means that the chaotic 'ringing' we're seeing the market atm could be driven beyond the 1929 upset, particulalry if there are any more significant events to come.

slamminsam said...

I was a broker during 87 crash (technical analyst too) and recent mkt charts are not close to what happened in 1987. However, things are looking pretty bad for the long haul. Should we get a rally it won't last long because of distribution from Jan. 07 on the P&F charts.

Rob Hanna said...

All interesting comments. Thanks. Rob