A Look at the 1929, 1938, and Current Recoveries

Sep 17, 2009: 9:57 AM CST

With the current Dow Jones Index up 52% from the March 2009 lows, let’s compare the current “Post-Crash” recovery rally to those of 1929 and 1938 to see of those periods can place our current rally into historical context.

Dow Jones 2009:  Up 52% in 28 Weeks (ongoing):

Dow Jones in 1938:  Up 62% in 31 Weeks

Dow Jones in 1929:  Up 53% in 22 Weeks

I’ve drawn Fibonacci retracement grids only as a reference.  Interestingly enough, the 1929 rally poked just above the 50% Fibonacci line while the 1937 rally stopped almost exactly at the 61.8% retracement.

The current 50% Fibonacci retracement (from peak to low) of the Dow Jones rests at 10,328.

The current rally has lasted six weeks longer than the 1929 rally, but is three weeks shy of matching the 1939 rally length.

In 1929, the stock market made a new low in October, 1939 (one year after the low of 200 was formed which is seen above) and then the actual low (of 51) was not made until July 1932.

In 1937, the stock market made a new low in April 1942 (five years after the low seen above was made) though the actual low (of 93) was made one month later in May 1942.

If history is a guide, then the stock market could have more upside – perhaps at least to the 50% retracement – but should we get there, it would be wise to begin monitoring the market much more closely instead of getting wildly bullish and optimistic.

As always “past performance does not guarantee future results” but history is certainly informative in putting current recovery rallies into context.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

12 Comments

12 Responses to “A Look at the 1929, 1938, and Current Recoveries”

  1. traderblastradius Says:

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  2. jasonsymond Says:

    Wouldn't 50% retracement be 10328 on dow based on your chart and not 11328 as you wrote?

  3. Corey Rosenbloom, CMT Says:

    Thanks Jason,

    I mistyped an extra “1” in there and have corrected the 10,328 price level.

  4. c1cummin Says:

    interesting, thanks for the analysis, Corey. Just curious, in the previous recovery rally examples highlighted, did those rallies end being part of an elliott wave and if so, which one?

  5. Corey Rosenbloom, CMT Says:

    Thanks C1

    Absolutely – but it would take a larger viewpoint to quantify specifically which waves unfolded.

    I've taken a more general rather than specific approach to wave labeling, noting the difference in impulse and corrective, and then watching momentum with 3rd and 5th waves.

    In both 1938 and 1929, it appears that the rally was a 5-wave fractal or perhaps a convoluted 3-wave “ABC”.

    I'd really have to show the larger structure for a better perspective – that's a great idea for a follow-up post!

  6. hfguy Says:

    Corey,

    a few big picture indicators:

    1. Weekly Ichimoku cloud was pierced this week and the two leading spans crossed (we'll see if it stays) but that was not the case until 1933 and the end of 1938 respectively

    2. Monthly MACD crossover – same

    3. Monthly RSI above 50 (1933 and end of 1942 resp)

    4. 12-month EMA (1933 and 1942)

    I have not run the Coppock curve or the Miekka curve but I bet they show a similar picture – i.e., the bear market rallies in 1932 and 1937 didn't have any of the technical readings we have today and those showed up only after the bear market had truly ended…

  7. Don-Da-Mon Says:

    Corey, What did the dollar index (if there was one) do back during the great depression? It seems the dollar value is playing a big role in today's market. Did it also back then? If no dollar index, what else could be used gold?

    Here is the chart I use to normalize the S&P with the dollar index

    http://stockcharts.com/charts/performance/perf….

    Select UDN tab to normalize

  8. Don-Da-Mon Says:

    Corey, What did the dollar index (if there was one) do back during the great depression? It seems the dollar value is playing a big role in today's market. Did it also back then? If no dollar index, what else could be used gold?

    Here is the chart I use to normalize the S&P with the dollar index

    http://stockcharts.com/charts/performance/perf….

    Select UDN tab to normalize

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