In 1937 All Over Again I laid out the case that we are following the pattern of the original double-dip, the reversal in 1937 that broke the hope of coming out of the Great Depression.
James Shaw at SeekingAlpha had first suggested this pattern back in 2008, and updates his analysis today. The chart is a bit busy, but you can see he overlays a simplified pattern of our market on top of the 1937-42 market. If the pattern continues, here is the roadmap:
- flat for the rest of August
- bounce in Sept/Oct
- sharp drop in Nov/Dec
- sickening slide for two more years
- new low in 2012
My question for Mr. Shaw (or for you Yelnick) is what is the actual statistical correlation coefficient between the 1937-1942 pattern to that of today?
I believe that that would be a most important value to know.
Posted by: Michael | Thursday, August 12, 2010 at 09:31 AM
Michael, as you are certainly aware, correlations to 100-year floods like the 1929 crash or the 1938 drop are too infrequent for any statistical predictability. These are more backdrops for stories about what may be happening - the guidance is directional not fractal. What makes 1937 seem to fit is how we have behaved since 2000 in comparison to 1929: we did what Ludwig von Mises warned against, which is continuing the bubble rather than accepting the pain. The 1937 pattern says a flat market with another rally into Oct, whereas orthodox wave theory says we are in the big bad P3 down. Neely most interestingly has a wave structure which complies with the 1937 pattern: a drop now to conclude a B wave triangle, than a C wave rally up near the recent highs (1131-1150).
Posted by: yelnick | Thursday, August 12, 2010 at 09:43 AM
Ok, sounds pretty good to me.
I would like to point out that the 1936 run-up, 1937 crash, 1938 low and rally off that is also similar to the 1929 to 1933 stock market. As well as the 2007-2009 stock market.
The strange thing is that the low in March 2009 looked very similar to the low in March 1938 (the final low of the 1937 crash), and I pointed that out here.
So you listed the setup of the 1937 crash. the setup of the 1930 crash was the high in April 1930, a decline into early July, then a small rally into Labor Day then a crash for two years. So that pattern is still alive.
And still on the table is the catastrophic crash which is the 'alternate of alternate counts' in AT THE CREST OF THE THE TIDAL WAVE (figure 5-7) where this entire Grand Super Cycle Wave IV plays out like a bigger version of the Crash of 1987. If anyone has a copy of this book I urge you to check it out. It is very interesting.
da bear
Posted by: da bear | Thursday, August 12, 2010 at 09:50 AM
One difference between now and then is that before the 1937 crash Americans knew that they were in a depression (at some point). That is not the case today. US did not recognize this depression after the Fall 2008 crash just as America did not recognize the depression after the Crash of 1929. The depression was not realized by the collective American psyche until 1931 (during the heart of the 1930 to 1932 stock market collapse and the height of bank runs and bank failures). I predict that 2011 will be our 1931.
The crash of 1937-1938 and the crash of 1930-1932 look similar on a stock market chart, the only difference being the economic and psychological background.
Finally, I think that the 2016-2017 low will be more like the 1937-1938 low (a higher low at the END of the depression).
da bear
Posted by: da bear | Thursday, August 12, 2010 at 09:56 AM
"Neely most interestingly has a wave structure which complies with the 1937 pattern: a drop now to conclude a B wave triangle, than a C wave rally up near the recent highs (1131-1150)." - Yelnick
Interesting.
Let's see how it shakes out.
:)
Posted by: Michael | Thursday, August 12, 2010 at 10:52 AM
Yelnick - Question off topic.
I have been working with a friend on a project that I believe has the potential to become a web property with enormous value. We have shared the idea with close friends and family and they share our belief. We have been hesitant to share the idea with deep pocketed individuals for fear the idea will be taken.
Is it common practice to have potential investors sign a NDA agreement?
Thanks,
Dave
Posted by: Dave | Thursday, August 12, 2010 at 10:56 AM
Yelnick, where would you label the bifurcation point on the breakout of the trading range? Most of the recent price action was between 1070 and 1130, We have broken hard at the 1122 Fib.
Bifurcation Practice
Within this broad construct, the Bifurcation Point is the key to market predictions. Simplified, it can distinguish a corrective wave from a change of trend wave better than the often convoluted wave numbers of orthodox wave theory. Four key rules:
* The break off the Bifurcation Point must go outside of the recently overlapping trading range
* The speed of the break must be faster (steeper) than the prior corrective waves
* The break should occur at a Fibonacci (0.382, 0.5, 0.618. 1.0. 1.618) or Repetition (0.5, 0.707, 1.0, 1.414, and 2.0) ratio of prior waves/projections
* The break is often at a triple-top or - bottom
Posted by: ROLF | Thursday, August 12, 2010 at 11:05 AM
Dave, institutional investors will not sign an NDA for an idea stage company. Sophisticated family funds won't either. Friends & family probably would, but they should not be a worry to steal an idea. Venture investors see lots of deals and lots of similar ideas, and often it is unclear who thought of what among the various incoming ventures seeking money; they do not want to assume the uncertain complexity of a lawsuit from a deal they passed on. Your best argument emerges where the idea is patentable: when you are in process of patenting the idea, a disclosure can hamper patent rights. If it isn't at that level, your best approach is to get started fast and plant the flag in the market. If it has the potential you extoll, it should grow fast and thereby pre-empt potential copycats.
Posted by: yelnick | Thursday, August 12, 2010 at 11:07 AM
da bear,
Very interesting analysis!
Can you post the figure 5-7 for us all to see how relevant it is to the current market situation?
Thank you
Posted by: tom | Thursday, August 12, 2010 at 11:09 AM
ROLF, great question about where the bifurcation is. The answer depends on what scale we are bifurcating.
- There has been an "Arch Crawford" trading range for two weeks, which we have bifurcated. We had a triple top around Sp1128.
- There has been a Wave 2 trading range since May 25 with peaks around 1115 and bottoms around 1040 with a false break to 1011 and a final break and reversal at 1128 - we have not yet bifurcated out of that
- There has been a larger trading range since January, with three tops: 1150 back then, 1220 in the middle, and now the recent 1131/1129 level. We have not yet bifurcated that
Although lots of folks will watch 1011, the break is around 1040, the bottom of that range other than the one false break below it (that reversed quickly).
If we break below 1040, AND stay below, the bifurcation point will be the last top on Aug10 which gapped down Aug11. Under Zoran's approach, timing is done from bifurcations. If you look back, Feb5 may have been the intraday low but it took about a week to bifurcate. Similarly Apr26 is the high but it took into early May to bifurcate. In our recent case, while the market began to reverse on Aug4, the bifurcation wasn't until the gap down Aug11. Timing should be done from those points.
If we break below 1040 AND reverse fast, it will be another false break. Neely's count will rise to pre-eminence and we should expect a final test of the 1150 level in Oct. Then Jan/Apr/Oct will be the triple top and form the head and shoulders pattern.
Posted by: yelnick | Thursday, August 12, 2010 at 11:18 AM
Yelnick, Thankyou for the thoughtful analysis! 1040 does look about right and it could be of the flash crash variety. I try not to over think this but do think the 8/10 Bradley turn date may have marked the top. If so I would guess down into 9/11, corrective move up, and down thru elections.
http://stockcharts.com/h-sc/ui?s=$SPX&p=D&b=5&g=0&id=p36702167876
Posted by: ROLF | Thursday, August 12, 2010 at 11:50 AM
Yelnick....
RED ALERT...Please comment on the following ASAP:
http://tickerforum.org/akcs-www?post=144811
http://www.safehaven.com/article/3880/the-past-performance-of-the-hindenburg-omen-stock-market-crash-signals-1985-2005
Is this it? If the hindenburg omen kicks in now, with the underlying economic data and debt levels, does this end the world economy as we know it? Jubilee must follow, IMHO.
Posted by: Nero | Thursday, August 12, 2010 at 11:56 AM
Nero,,
Damn, thanks for sharing. Not good, not good at all. This be it. Time to make preps.
Posted by: DannyBoy | Thursday, August 12, 2010 at 12:01 PM
Yelnick,
I'd still like to see what the correlation coefficient is between now and 1937. I'm sure one can be easily computed, and am at a loss as to why people fail to include that number when presenting their "analysis".
Posted by: Michael | Thursday, August 12, 2010 at 12:10 PM
Hindenburg Omen has been confirmed, be wary:
http://news.goldseek.com/PeterCooper/1281593340.php
Posted by: Butler | Thursday, August 12, 2010 at 12:45 PM
Thanks Yelnick.
Posted by: Dave | Thursday, August 12, 2010 at 12:50 PM
Michael, take a look at the chart from the WSJ in my earlier 1937 post
Posted by: yelnick | Thursday, August 12, 2010 at 01:15 PM
How's the A/D decline indicator faring for the guys who pumped it consistently a few days ago?
Do you still think the bull market since march 2009 has yet to continue?
Posted by: Whitebear | Thursday, August 12, 2010 at 02:44 PM
BTW, just so that you know, the A/D volume isn't faring as good as the A/D issues line.
http://stockcharts.com/h-sc/ui?s=$NYUD&p=D&yr=3&mn=0&dy=0&id=p12386910975
Posted by: Whitebear | Thursday, August 12, 2010 at 02:46 PM
da bear,
I don't think the great depression will ever happen again. What broke the back of the Camel in 1930 is the Gold standard which does not exist today.
The Federal reserve now has the power to reprice the whole economy. They can throw money anyway they want and put Gold at 2000 simply to avoid a great depression. I think that is the most important point that Bob P. does not see.
Posted by: LabelsFools | Thursday, August 12, 2010 at 02:57 PM
Michael i can tell you that the correlation coefficient between the period from July of '37 through Sept. of '38 had a coefficient around .90 with the period running from June '08 to Aug '09, maybe as high as .92 if i remember correctly - that was extraordinarily high and made a far more compelling case for the market of '09 to be rhyming with 1938. This was helpful to me in realizing the market was NOT topping in June of '09 but not as helpful when I believed with Roger like fervor that the market was topping in late Oct of '09 - the correlation fell apart from that point on. I would argue that the big picture correlation in the indices between 2000-2010 and 1929-1939 is strong enough that this should have a greater impact on market psychology going forward then any correlation between the macro picture then and now.
Of course, god help anyone trying to trade based on any of this.
Posted by: OracleLurker | Thursday, August 12, 2010 at 02:59 PM
And back in the spring of 1720, Sir Isaac Newton owned shares in
the South Sea Company, the hottest stock in England. Sensing that
the market was getting out of hand, the great physicist muttered that
he “could calculate the motions of the heavenly bodies, but not the
madness of the people.” Newton dumped his South Sea shares, pocketing
a 100% profit totaling £7,000. But just months later, swept up in
the wild enthusiasm of the market, Newton jumped back in at a much
higher price—and lost £20,000 (or more than $3 million in today’s
money). For the rest of his life, he forbade anyone to speak the words
“South Sea” in his presence.4
Posted by: LabelsFools | Thursday, August 12, 2010 at 03:09 PM
Warren Buffet on EW fans...
Adding many converts to the value approach will perforce narrow the spreads
between price and value. I can only tell you that the secret has been
out for 50 years, ever since Ben Graham and Dave Dodd wrote
Security Analysis, yet I have seen no trend toward value investing in the 35 years that I’ve practiced it. There seems to be some perverse human characteristic that likes to make easy things difficult. The academic world, if anything, has actually backed away from the teaching of value investing over the last 30 years. It’s likely to continue that way. Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace, and those who read their Graham & Dodd will continue to prosper.
Posted by: LabelsFools | Thursday, August 12, 2010 at 03:13 PM
DG
thanks for the labels ,,,, always appreciate the right count in your opinion, and your charts.
my timeframe is so different and the EW is about a 10% factor in my trading ,,,, like a basic roadmap. but EW structure is great for the trends
chop markets are quick entry-exit atmosphere for me.
for example, either all 5 waves the c are done by tomorrow morning, or spx goes another 30 handles down, before some type of rally.
you should know, awhile ago, you quoted me and posted a "No" to some wave count i posted. That gave me a good laugh. still does. :)
btw, it's interesting that you have kept to the corrective labeling all but a few times. Looks like it's working out for your count.
so what are your signals for the possible rally or down continuation that you mentioned?
wave rust
Posted by: Wave Rust | Thursday, August 12, 2010 at 04:07 PM
yelnick
is that your phone number ?? !!!!
I remember the moore group has always had a running comparison of a years worth of data . don't have the link anymore.
wave rust
Posted by: Wave Rust | Thursday, August 12, 2010 at 04:11 PM
michael
your question about why i naively think presidents have any influence on the economy, might be considered naive.
but i'll answer it, if i know what your general age is. that would help me know why you might think me naive. and i don't take any offense at that label.
wave rust
Posted by: Wave Rust | Thursday, August 12, 2010 at 04:16 PM
Expiring vouchers trumps helicopters. Deflation is perfectly possible. But so is inflation. No idea which way the top will fall. EWI has been basically wrong since 87 but they are not the only conmen.
Posted by: El Coro | Thursday, August 12, 2010 at 04:43 PM
wave rust,
so what are your signals for the possible rally or down continuation that you mentioned?
If we're going to rally, I'd like to see this current move down turn into a Terminal for the wave-c of the C-Failure Flat. On a Daily chart, the price action since the August 9th high could be an Elongated Flat to kick off a Triangle of some sort, with today the end of the wave-.c of that Flat. So, even though it's VERY early, I can't rule out a Terminal just yet.
If we aren't going to rally and the Expanding Triangle just happened to be in a wave-b position, but isn't foreshadowing a C-Failure Flat, we should eventually make a new low, just at a slower pace than the rise from the July low.
That said, even though I strive to have the right wave count all the time, there are going to be opportunities for bulls and bears in this market from a trading perspective. I don't get married to one side or the other. Not even 5 minutes into the trading session today, I got a long signal and took it and got stopped out with nice gains a bit after lunchtime. This is after getting a short signal at the end of the day on "Fed Day" and taking it and riding it down quite nicely yesterday.
Out of my last 50 trades over the past 2 1/2 months, 23 were short and 27 were long. Look at a chart over that time period and tell me that isn't about right, since all we've done is oscillate within a range anyway, so it makes perfect sense to take trades in both directions in that context. To me, at least, it does.
Posted by: DG | Thursday, August 12, 2010 at 04:55 PM
Since categorical statements are SUPREMELY RISKY, in front of all of you who are secretly my fans, I will make one, for the purpose of making sure my invisible miniature gremlins on each of my shoulders (IMGOEOMS) are not taking their cushy jobs for granted. The present lows on the Dow MUST be followed by further lows before a sustainable upmove can occur. This is because the present low on the 60 minute established at today's open is thoroughly NOT harmonic from a time and price/fib arc perspective. Thus it must go lower before the end of the move.
I SOLEMNLY GUARANTEE THAT THIS RATHER EASY PREDICTION OF THE FUTURE WILL TURN OUT TO BE CORRECT, but which,if it doesn't, I will equally solemnly continue to be generally anonymous behind my heretofore handle "Bird", but which, hereafter, I will change to some other handle, to throw the mob of all 7 or 8 of you off the track, in your vain attempt to "get even".
Bird
Posted by: Bird | Thursday, August 12, 2010 at 06:45 PM
thanks DG
fwiw, re: your ".e? of .E?" on your chart ,,,, i have that wave ending at the high close on aug.4
it makes for weird abrupt ending maybe ,,,, that was my e or 5 of 'c ,or 2 :-)
from that high it's been ab and abcd ,,,, maybe e gets to 1070, if the e is not done yet. last intraday waves, either e's or 5's are almost useless to trade, as a general rule, imo.
wave rust
Posted by: Wave Rust | Thursday, August 12, 2010 at 08:52 PM
Isn't this a fairly impressive head and shoulders on the Russell? http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID1399335&cmd=show[s66970159]&disp=P
Posted by: bob m | Thursday, August 12, 2010 at 09:45 PM
wave, sure is was. Is put there when I reply off my iPhone if I forget to delete it.
Posted by: yelnick | Thursday, August 12, 2010 at 09:48 PM
Bob M, from Jan to now we have traced out a classic H&S. If it ever works, it should now - all the rules have been met, including the lesser volume in the right shoulder. Throw in one more Hindenberg Omen and down we should go.
Posted by: yelnick | Thursday, August 12, 2010 at 09:50 PM
I have a bear count for the HUI that if it pans out (B as a contracting triangle, currently have what looks like three triangles finishing for e of B, e of e and e of e of e). I need a drop tomorrow to about 430 and then all the b-d lines are converged to the main b-d line of B for a roll-over and crash. Probably negative for the general markets too. So I'm still partial to the SPX count: flat-x-expanding triangle from 1200. http://www.mexicomike.ca/php/phpBB2/viewtopic.php?p=124046#124046
Posted by: Dsquare | Friday, August 13, 2010 at 01:12 AM
How's the A/D decline indicator faring for the guys who pumped it consistently a few days ago?
Do you still think the bull market since march 2009 has yet to continue?
Posted by: Whitebear | Thursday, August 12, 2010 at 02:44 PM
Yep - that arrogant tosser Michael if I recall correctly was the guikty party. Oh and his best mate JT was extolling the virtues of new highs and surges while at the same time berating all and sundry for not being traders.
hey JT - do yourself a favour and stick to telling us what happens after the event (which is what you are best at) as you suck at forecasting the future you pompous twit!
Posted by: Perigee | Friday, August 13, 2010 at 02:29 AM
thanks DG
fwiw, re: your ".e? of .E?" on your chart ,,,, i have that wave ending at the high close on aug.4
it makes for weird abrupt ending maybe
Yep, but all sorts of weird things happen in Corrective patterns.
I have that structure ending on August 9th with a nice negative divergence between the SPY/SPX and IWM/Russell 2000, with the SPY making a new high and the IWM not.
That count may (probably?) not be right, but even so, Neely's time rule that in a Corrective pattern of more than 3 segments, segments 4 and beyond can't be more than the combined time of the 3 preceding segments alerted me to a possible end of the rally I had labeled as wave-.e, at two Degrees. This same rule gave me the window for the high in April as well, which also happened to within a couple of days of where I thought it would.
Posted by: DG | Friday, August 13, 2010 at 03:45 AM
the 87 fractal is a better Fit ......
Posted by: Hank Wernicki | Friday, August 13, 2010 at 05:05 AM
Perigee, excellent!
Posted by: Mamma Boom Boom | Friday, August 13, 2010 at 07:32 AM
DG,
re: the aug 9th ending
for me, that screws up the intraday abc down that probably ended yesterday or today ,,,, unless the market does one of those Feb 1st and 2nd launch and then crap things. that doesn't look like it's the right set up for that.
for me, the rut failure on the 4th, to get even close to new highs is a very high correlation event when it diverges from spx and ndx. the neely observation that many waves complete below/above the extreme may be the case for both ends of this whole unit since the july 2nd low close.
credit to tony caldaro for his long standing opinion that rut has never had a bull market. according to him, it's has always had a corrective structure. it seems to fit, imo.
i've got to move to the long side for the next few days at least ,,,, looks bullish. looks like they are pumping hydrogen into the Hindy. :)
wave rust
Posted by: Wave Rust | Friday, August 13, 2010 at 07:52 AM
Hank,
what part of 1987 relates to some part of this 2010?
wave rust
Posted by: Wave Rust | Friday, August 13, 2010 at 07:54 AM
EWT discusses the 87 crash ............... read Yelnick's post
Posted by: Hank Wernicki | Friday, August 13, 2010 at 10:38 AM
Michael i can tell you that the correlation coefficient between the period from July of '37 through Sept. of '38 had a coefficient around .90 with the period running from June '08 to Aug '09, maybe as high as .92 if i remember correctly - that was extraordinarily high and made a far more compelling case for the market of '09 to be rhyming with 1938. This was helpful to me in realizing the market was NOT topping in June of '09 but not as helpful when I believed with Roger like fervor that the market was topping in late Oct of '09 - the correlation fell apart from that point on."
Thank You.
I believe that Miss Louise Yamada (technician) has been using this analog and correlation as well, for quite some time in fact. She's spoken about it numerous times while appearing on CNBC.
Posted by: Michael | Tuesday, August 17, 2010 at 07:09 AM
Mother Thank,limit sleep effect other conclusion pocket know last industrial night path term condition cover move meeting works my little size cos couple cut tree even see temperature hospital fact strike expert wine relation neither reason today specific next serious quality wild accident box tradition alone expect centre police spring away off initiative bad its little used outside fear free college able revenue screen year outcome case approve parent observe young derive neighbour tend none character pay currently employee second nice fly objective element mind enter vote last gain human odd prospect
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