Credit: Shutterstock photoHickey and Walters ( Bespoke ) submit:
Below is a percentage change chart of the Dow Jones Industrial Average from its peak in 1929 and its peak in October 2007 going out 698 trading days (which is up until last Friday in today's market).
In early July, an article titled " Dow Repeats Great Depression Pattern " made its way around the web. The first paragraph noted:
The author of the report that was the focus of the article (who wrote another piece last week) noted that just before the 1929 crash, a head and shoulders pattern formed, and then after the Dow bounced following that crash, another head and shoulders pattern formed that preceded an even bigger fall over a number of years. He argued that a head and shoulders pattern also marked the beginning of the market crash in 2007, and that another recently formed head and shoulders pattern spelled doom for the markets.
Maybe we're not looking at it right, but to us, the 1929 pattern looks completely different than the current one.
click to enlarge
Back in 1929, there was a head and shoulders pattern just before the crash, and then another head and shoulders pattern formed after an initial bounce that was followed by a multi-year downturn. But saying that the 1929 pattern is anywhere similar to the current pattern is a stretch. The 1929 crash lasted a few months, then a bounce occurred, and then the head and shoulders pattern followed five months later. The entire pattern lasted about 10 months. In the recent bear market, the declines lasted a year and a half before the first bounce occurred, and the bounce then lasted more than a year.
Below are charts of the two multi-head and shoulder patterns that the article uses to argue that another big decline is coming. Again, comparing the 1929 pattern to the current one and arguing that it portends another crash seems like a stretch. Who knows, maybe another crash is coming, but it's hard for us to make the 1929 comparison.
The two charts below are over the exact number of trading days during the two periods. The red shading represents the head and shoulders patterns in each chart.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
