Over the last year, I’ve been updating charts comparing today’s market to the Crash/Recovery phase from the 1929/1930 period.

In the most recent update, I showed a “Haunting Look at the 1930 Crash/Recovery Phase” and this post is an update of that “haunting” chart, but this time with a larger chart and a direct side-by-side comparison.

Let’s see it:

(Click for the full-size chart – too small to see in this window)

I created this chart using TradeStation on a widescreen monitor, so it’s not your usual chart – it’s actually two charts side-by-side.

The Dow Jones weekly 1930 chart is on the left and the Dow Jones Daily chart up to June 29 2010 is on the right.

I wanted to hit the highlights of the clearest structural comparisons – use the circled numbers for reference:

1.  Failed/Busted Head and Shoulders Pattern after an initial rally

2.  Positive “Golden Cross” of the 20 and 50 EMAs (the EMA structure is identical before and after)

3.  New Recovery High forms on Lengthy, Multi-Swing Negative Momentum Divergence

4.  Sharp Sell-off takes price under key moving averages (and new momentum lows form)

In addition to these four structural points to watch, I’ve also labeled a 5-wave semi-Elliott Count, but I suggest thinking of the numbers not in terms of Elliott, but in terms of reference points.

Point 1  was an initial swing up off the low with 2 being the ‘failed’ head and shoulders pattern.  Point 3 compares the sharp rally that formed from the busted head and shoulders pattern.

Point 4 was a quick sell-off back to the rising 20 EMAs and point 5 was a ‘fluff’ rally that comprised a non-stop ‘popped stops’ phase that ended with a crash in both cases.

The comparison still has price sitting on the key support line, which will determine whether the comparison continues (like watching a horror movie unfold in real life) or ceases to be.

The level in 1930 was 260 and in 2010 it is 9,800.

It’s possible that we’re in the first downswing after the ‘crash’ from new recovery highs, and if so, then we may have one more rally higher in the market, particularly if we find support at the 9,800 level and bounce from there.  That would follow the script more accurately.

Either way, I think all market participants are watching the 9,800 level, and a break under there will …

We’ll discuss that when and if that happens.

Corey Rosenbloom, CMT
Afraid to Trade.com

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