Tuesday, August 17, 2010

Scary Similarity: Charts 1929-1930, and 2008-2010; Big Drop or Crash Ahead?

There are scary similiarities if you look at the charts today (2008-2010) and the Charts (1929-1930) around the time of the Great Depression.

Here is the current chart from 2008 to 2010 of the S&P 500:

Here is the chart from 1929 to 1930 of the Dow Jones Industrial Average (DJIA)

Comparison Points

On each chart, there are labels. A label on one chart, should correspond (similarity) with the same label on the other chart.

  1. A: 2007: S&P 500 peak of around 1560
    A: Sept 1929: Dow Jones Average peak of around 380

  2. B:2008: S&P 500 Drops from 1560 to 1270, -18% drop.
    B:1929: Dow Jones Average Drops from 380 to 325, -14% drop.

  3. C:2008: S&P 500 Intermediate Peak from 1270 to 1440, +13%.
    C:1929: DJIA Intermediate Peak from 325 to 352, +8%.

  4. D:2008: S&P 500 Crashes in short time period.
    D:1929: Dow Jones Average Crashes in short time period.

  5. E:2008: S&P hits intermediate bottom of 741, a drop of 52% from peak of 1560.
    E:1929: Dow Jones Average hits intermediate bottom of 230, a drop of 39% from peak of 380.

  6. F: 2008: S&P 500 Sharp Rebound from 741 to 944, a gain of 27%.
    F: 1929: Dow Jones Average Rebound from 230 to 271, a gain of 18%.

  7. G: 2009: S&P 500 hits Bottom from 1560 to 666, a loss of 57.3%
    G: 1929: Dow Jones Average hits bottom from 380 to 198, a loss of 48%

  8. H: 2009: S&P 500 Rebounds from bottom.
    H: 1929: Dow Jones Industrial Average Rebounds from Bottom.

  9. I: 2009: S&P 500 Pulls back from Rebound.
    I: 1929: DJIA Pulls back from Rebound

  10. J: 2010: S&P 500 Hits "Left Shoulder"
    J: 1930: DJIA Hits "Left Shoulder"

  11. K: 2010: S&P 500 Hits "Head"
    K: 1930: DJIA Hits "Head"

  12. L: 2010: S&P 500 Hits "Right Shoulder"
    L: 1930: DJIA Hits "Right Shoulder"

  13. M: 2010: S&P 500 Hits "Rare Double Right Shoulder"
    M: 1930: DJIA Hits "Rare Double Right Shoulder"

Rare Double Right Shoulder 2010, and in 1930 Before More Drops

Another similarity involves a rare technical pattern, the Head and Shoulders Top with a Double Right Shoulder.

Two other writers including one from China Daily, and the other from CNBC have written about this.

2010: Double Right Shoulder in Head and Shoulder Pattern

1930: Double Right Shoulder in Head and Shoulder Pattern

Big and Long Drop Ahead?

If the Pattern holds, are we in for a Big and Long Drop Ahead?

In 1930, after the rare Double Right Shoulder in a Head and Shoulders Technical Pattern, the Dow Jones Industrial Average Continues to fall from 275 in 1930 to around 41, July 1932, a drop of 85%.

Of course, just because the charts are similar in both eras does not necessarily mean we will repeat history.

But it does make us think.

Today's S&P 500 Chart