"...the charts for today and 1929 are identical..." Today (here), we’re detailing why stocks will Crash this coming fall Market Oracle
Stocks Bear Market NOT Over, Stocks WILL Crash this Fall!
Aug 05, 2009 - 01:47 AM
By: Graham Summers http://www.marketoracle.co.uk/Article12532.html
Yesterday we detailed the different between this current economic contraction, and your usual run of the mill plain vanilla recessions. We also went over the MASSIVE consumer credit contraction that needs to occur before American households have finished de-leveraging More at:
http://www.marketoracle.co.uk/Article12532.html
Today, we’re detailing why stocks will Crash this coming fall. As you know the media is rife with folks calling the end of the recession and the beginning of a new bull market. It’s clear to me that this is a load of nonsense. Today I’ll show you why.
Because a lot of the alleged “analysis” that is backing up the bulls’ claims of a new bull market comes from technical analysis and charts, I’m presenting the below chart from David Rosenberg of Gluskin Shef. It charts today’s bear market over that of 1929-1932.
As you can see, today’s bear market is mirroring that of the ‘30s almost to perfection. Indeed, the correlation between the two charts is an incredible 0.8, meaning it’s 4/5ths perfect. In finance, you’re lucky if you get a correlation above 0.6. (gold and the dollar are only 0.28 inversely correlated). A 0.8 correlation is virtually unheard of. But that’s exactly how closely today’s market is mirroring that of the ‘30s.
I can’t take full credit for this insight. Ron Coby, an investment manager at Coby Lamson in Oregon first started pointing out the similarities between this market and that of 1929 back in February ’09. No one wanted to listen to him then.
They’re listening now.
Coby notes that from October 29, 1929 until November 13, 1929, the stock market collapsed 48% (the 2008 Crash was 52%). Then from November 1929 to April 1930 the market staged a 155-day rally of 50%. Today’s rally (starting in March ’09) has lasted 150 days and the market is up an average of 50% (average of Nasdaq, DJIA, and S&P 500).
Unfortunately for the bulls today, the 1929 market then rolled over and collapsed another 70%. “Bottom callers” INCLUDING legends like Jesse Livermore, Benjamin Graham and others bought ALL THE WAY DOWN, losing entire fortunes.
Ok, so the charts for today and 1929 are identical, what about the earnings? After all, profits are ultimately what drive the stock market: you buy based on expected future earnings of the companies. More article, analysis and charts at: http://www.marketoracle.co.uk/Article12532.html