Is there a valid comparison between today and the great depression in stock patterns?
In 1929 there was the crash which represented a .618 retracement to a significant low made in 1921. In 2009 we completed a close to .618 drop also to a prior significant low point. At the end of 1929 into 1930 we had a very sharp rally that retraced a bit more than 50% of the drop and it took about 5 months. We are currently in a 7 month bounce that has retraced a little more than 50% of the drop.
The 1929 recession was the result of a Real Estate Bust, so was our current recession. Government patterns of intervention are also very similar to what occurred back then. Unfortunately, having just one prior occurence to compare to does not a lock prediction make. I have seen hundreds of patterns that repeated almost identically for many years, that now have no predictive value. As a result, even though the chart patterns and events surrounding these things are eerily similar, I am hesitant to conclude that this pattern will repeat. If it were to as you can see on the chart, we have a waterfall coming very soon.
With all of this aside, I am treading cautiously here because it is just impossible for me to believe some of these earnings reports that are coming out, especially from the banks. From some friends I have in commercial real estate, I have an expectation that we have some difficult times around the corner, and banks do not appear to be fully anticipating that in their write offs they are making. Also we have seen some commercial selling in the NAZ in particular, and Sentiment is creeping up to very bullish levels in advisors, which is bearish.
The net of this post is this. If you have been able to hold on through this bounce, I would suggest having close stops on what you are long. If we keep going then you stay in, but if we start to roll over, you can take your profits and be out in case we really roll over. By any measure this move is very extended having virtually no retracements. As much as it is great to see the account balances rising, these types of moves have a tendency to have a big air pocket in them. There is really no support points at all, so fund selling could hit the streets all at once if this starts to roll over.
I think this is mostly to all the market manipulation we are seeing by the government. It would have been much better if some decent sized retracements would have been "allowed." This way there would be meaningful support points to hold declines. I do not see a single one on the chart.