Your Grandfather's Bear Market?
Or Your Great, Great, Great. . .Great. . .Great. . .Great Grandfather's?
By Robert Jay
Fri, 02 Jul 2010 15:45:00 ET
Personal stories of "making it through the Great Depression" are part of the family history for millions of Americans. Perhaps you've heard a family member tell his or her story about that trying economic time.
Are we destined to live through an equally severe bear market? Or is there another bear market period which serves as a "model" for today's market?
Well, market technicians who've studied the stock market charts from 1929-1932 do see a similarity between then and now. The first big drops in 1929 and in 2007 were both followed by substantial rallies. But here's what came after the late 1929-early 1930 rally:
So, if the 2009-2010 rally has run out of steam, is the above chart a useful guide for what may be ahead in today's market?
Hold onto your hat: the 86% drop depicted in the chart might be optimistic.
The 1929-1932 bear market is not the only one which may relate to today's big picture. Here's another:
You may think that 1720-1722 seems too long ago to be relevant. But please remember: the wave structure of the stock market is a fractal. Therefore, the price pattern of the stock market is a fractal at every level -- from an intraday basis to centuries!
When the South Sea Bubble burst it wiped out a lot of investors. At the peak, shares of the South Sea Company traded for 1,000 pounds. At the bottom they were worth practically nothing.
This collapse led to a 64 year bear market -- far longer, of course, than the bear market and economic depression following the 1929 Crash.
Bob Prechter has said that ". . .the next depression will be deeper than that of 1933."
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On an interesting side-note the United States declared itself an independent nation in 1776, just 8 years before that elongated bear market ended in 1784. Will the bear market and deflationary depression that commenced in 2008 eventually come to mark a turning point of a different kind for this modern-day superpower? Stay tuned!