That Analogy to 1937 Looks More Like 1907

On and off I show market analogies to famous corrections & rallies in the past. These are more like one-off events than predictive patterns, but are interesting to show that this time it is NOT different no matter how much investors would like to think so. Here is the prior 1937 analogy, which for a time looked spot on:

Updated and re-based by the Chart Store, here is how it now looks:

2-4-11 Swing Analog 1938-2009

Not so good. First thing to note is how the basing of these analogies can make them fit or throw them off. In the first case, the basing was to the 1932/2002 lows; in the second, to the 1938/2009 lows. Caveat Investor.

Doug Short does this all the time, and he has a recent 1937 analogy chart where he based it on the peaks in 2007 and 1937. It shows we have gone a bit higher in 2011 than the market did in 1940, but then again, back then Germany invaded France with tanks, whereas now the Fed invaded Treasury with QE2.

Back to the issue of basing these charts, the initial 1937 chart above based on the 1932 low & the Oct 2002 low, and the match since remains uncanny. We peaked in 2007 ahead of the 1937 peak (in trading days), and fell farther. Rather than shooting beyond the red line in the prior chart, using the 1932/2002 low basing, we would be coming up to the break point where the 1940 market took a sharp fall and ran down to the 1942 low.

Today The Big Picture shows two analogies: 1974 and 1907. The Hope Rally looks ominously like the rally after the Crash of 1907:

Pondering this, both were banking panics. Both also came after a long runup in stocks and a plateau; we had a great rally from the late 1870s to around 1900, when we entered a long trading range around Dow 100. At the next bottom, we created the Federal Reserve. At the next bottom this time, will Ron Paul get rid of it?

yelnick on Monday, February 28, 2011 in financial waves | Permalink

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How about a comparison of the november 1929 to Spring 1930 rally compared to the rally in stocks since march 2009.

I think a comparison could be made go that era if you call the 2000 top the orthodox top and 2007 the B wave top. Then the wave 1 of C down came in The Fall of 2008 with 2 of C topping out.

According to Elliott Wave Principle, Mr. Elliott named 1928 as the orthodox top. Then the 1929 top was the B wave top, with 1 of C down being the infamous October '29 Crash. The Wave 2 of C corrective rally peaked the next year. Then the nasty 3 of C down into the summer of 1932.

If anyone has a copy of Elliott Wave Principle check out Figure 8-3 on page 203. This chart projects the continuation of the stock bull market from the year 1978. It shows that as the wave 2 low. A steep rise for a projected wave 3 was then predicted. The wave 4 correction could correlate to 1987 with another rise up. This should be the wave 5 orthodox high instead of the chart's interpretation. I think that the later higher high should be the B wave high. Then it shows an incredible crash to follow.

da bear

No wave count left behind.

Posted by: da bear | Monday, February 28, 2011 at 07:03 PM