I wanted to share a portion of an article written by Robert Prechter of Elliott Wave.com in his recent “EW Theorist” newsletter where he discusses the possible historical link between the 1929 market crash and today’s eerily similar looking rally.

For the full article, check out the page by analyst Nico Issac, “Black Monday:  Ancient  History or Imminent Future?”

“Case in point: The 2008 “Black Monday” anniversary. At the time, the U.S. stock market was locked in a ferocious downtrend that included regular, triple-digit daily declines of 400 points and more. Needless to say, when the final two Mondays of October arrived, the least superstitious investors surrounded their portfolios with more good-luck talismans than a Bingo player.

See October 19, 2008 AP headline below:

“Black Monday: Stocks Sink As Gloom Seizes Wall Street. Prolonged Economic Turmoil” is seen.

Along with a similar extreme in bullish sentiment, the performance of stocks between now and the 1929 situation is cut from the same cloth. After an initial plunge from August 1929 through late October 1929, the US stock market enjoyed a powerful rally well into the following year.

NOW: After a steep freefall from its October 2007 peak, the US stock market is once again enjoying the fruits of a powerful rally back to new highs for the year.
Also, on closer examination, the October 19 Elliott Wave Theorist (EWT, for short) uncovers an even deeper parallel between the 2009 rally and the 1929-30 one. Here, EWT presents the following snapshot of the Dow during the Depression-era advance:

As Bob Prechter points out — in 1930, stocks rallied to the level of the preceding year’s gap. Bob then reveals that the same level has been reached now.
So, we all know how the 1930 rally ended. The question is whether the 2009 advance will experience the same fate. As Bob explains in the Theorist, the only way to know for certain is to “look at the reality of the situation.”

For more insights from Robert Prechter, download the 75-page eBook Independent Investor eBook. It’s a compilation of some of the New York Times bestselling author’s writings that challenge conventional financial market assumptions. Visit Elliott Wave International to download the eBook, free.

I am able to offer this article to you with permission as an affiliate member of Elliott Wave International.

As a reference, I have posted similar charts (and posts) of the 1929 period which show a similar structure to what is shown in the chart above.  See the following for additional analysis:

A Look at the 1929 and 1937 Crashes and Recoveries

Looking Back on the 1929 Stock Market Crash

Here’s a weekly chart of the 1929 crash from my “Crash and Recovery” post:

It’s helpful to see these charts from as many perspectives as possible.

For another (positive) look, compare to my post “Are We Reliving 1982 or 1975?“  where you can see how the analysis played out.  This referred to the market “Melt-Up” which appears indeed that history did repeat itself to the upside in these cases.

Corey Rosenbloom, CMT