Elliott Wave Similarities between 1938 and 2008

Apr 1, 2009: 11:51 AM CST

Earlier, I took a look at “Dow Jones Similarities Between Dow Jones 1937/1938 and Today” and then followed up with “The Resolution of the 1937 Bear Market,” both of which were high-traffic posts.  Let’s take a special look now at the Elliott Wave structure as more price bars have developed since that report and the structure is still as eerily similar now as it was then.

Dow Jones 1937 -1938 with 5-Wave Structure:

One could have interpreted the final wave structure such that an “ABC” Wave 4 actually completed at the beginning of 1938 (meaning, replace “A” with a circled “4”) and then one might have an even more similar structure that’s playing out in today’s market – in that many analysts (myself included) were (maybe still are) expecting a final test of the March lows to mark a Five-Wave fractal pattern.

We see that in 1938, those expecting a final push to ‘double bottom’ or test the lows were disappointed, as price managed to retrace to the falling 20 EMA (off of a positive momentum divergence) and then form only half a test of the lows at 100 before marking the ‘bottom.’  We know from the “resolution” post that this was not the actual bottom of the bear market (it occurred in 1942) but this structure preceded a 62% price rally off the lows at circled Wave 5.

Let’s see how Today’s structure resembles that of yesteryear.  I gave you a few more weeks to examine on the 1938 chart.  If I froze the chart exactly similar to today, I would have done so at the Doji at the 120 level which came up into the falling 20 week EMA in April 1938 (how ironic).

Dow Jones 2007 – 2009 with (possible) 5-Wave Structure:

A major takeaway is to watch very closely for a positive break above the falling 20 week EMA to assure us that any rally has legs.  We’re seeing a very same oscillator and moving average structure, combined with the broader Elliott Wave structure.

IF the structures do wind up being more similar (and that is a big ‘if,’) then we could expect a weak downswing that may take us to the 7,000 level, but price would find support there before testing lows, and we could even get a continuation of this swing.  There’s no certainty or guarantees in either direction, but sometimes it can be helpful (if only to give reference) to look at what’s happened before to see what has potential odds of happening again.

For now, I continue to be amazed at how similar this Bear Market (price-wise on the Dow Jones) appears to the last major Bear Market.  The implication is that 6,500 may mark an intermediate low that could hold for a few years and give us a decent rally… but it might not be the absolute low.

Corey Rosenbloom
Afraid to Trade.com

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16 Comments

16 Responses to “Elliott Wave Similarities between 1938 and 2008”

  1. David Forster Says:

    Right now, it is playing out in such a similar fashion it is really quite scary – alas, many people are making the same comment, so the similarities could fail soon. THANKS for continuing to post on it – I am a BIG believer in this analog

  2. Corey Rosenbloom Says:

    David,

    That’s my concern – it may all be total coincidence, or it could be playing out ‘mystically’ but because everyone sees it, they’ll try to front-run it somehow (buying/selling ahead of the expected structure) which would degrade the relationship.

    I’m not one to believe in mystic coincidences, but even the skeptic has to admit the similarities are eerie – but given that some people are calling for a Depression currently, it would make sense to look back to see what the last Depression looked like in the Stock Market.

  3. Anonymous Says:

    I don’t know. In 2007 – 2009 chart, the current pattern looks like we are in C wave.

  4. Corey Rosenbloom Says:

    Anon,

    Agreed – that’s the larger structure, but the C Wave will have a five-wave fractal structure.

  5. David Forster Says:

    The degrading is an interesting thought. I felt strongly that the analog would come true this week with a sell off from SPX 831 (as predicted by 37-38) to 770 – Alas, so many people were looking for 770 that we never got there. To the upside, this current rally should fail between 817 and 820 on the SPX before we start the proper re-test. Maybe we do not get to those levels either. I will keep following it and posting my thoughts. THANKS!

    p.s. THE BIG significance of this analog for me, and the reason I have been tracking it so closely is the BIG unfilled GAPS that occurred in Sep 37 and Oct 08.

  6. Corey Rosenbloom Says:

    It’s confusing – almost like the market has become unhinged. Definitely harder to trade at least.

    Good point – I had not looked into those gaps from the 30’s. We of course have large-scale gaps unfilled on our charts now as well.

  7. dacian Says:

    Corey, we are definitely in a bear market from 2000 and next year will mark 10 years of bear market with a huge rally from 2003 to 2007. Why don’t you look at the crash from 29 and compare it with the one started in October 2007? Look what happened after a 50% drop in 29; we had a 50% rally or something similar followed by 9 waves down, a total of 89% drop if I’m not wrong. Why do you compare today’s with 37-39?

  8. Anonymous Says:

    request: i am doing some bottom fishing on lvs and now looking at cbs. like the low it is putting in… just technicals. any way you could do a chart analysis on cbs in the next few days??
    thanks.
    big fan corey… john

  9. Anonymous Says:

    i see us going to 850 and 8000 then reversing. http://tacharts101.blogspot.com/

    cory how do i log in to name so i am not anonymous. thanks

  10. Corey Rosenbloom Says:

    Dacian,

    Excellent point – I’ll do a follow-up to look at that period as well. Thank you for the suggestion.

  11. Corey Rosenbloom Says:

    John,

    I’ll try to do so. LVS and CBS. If I don’t get to it, kindly remind me to do so please. Thanks for the request!

  12. Corey Rosenbloom Says:

    Josh,

    Excellent chart analysis! Thanks for sharing.

    You should be able to log-in under the link at the top-right of the blog and then post in the comments.

    If need be, you should be able to type your name and website into the comment headers (field) before posting a comment.

    The blog is about to undergo a major renovation so everything should be much easier soon.

  13. Austin Says:

    Corey
    It is very striking the resemblance to 1938. I do agree that we have seen 5 down in harmony with the 1938 chart. However, i think the important thing to bear in mind is the trend is now up- trying to trade every movement is going to be very tough.

    I just wanted to highlight something that i have re-read of late in the Wave Principle that i think is invaluable to bear in mind at this point. It states, “there are times when several different wave counts are perfectly admissable under all Elliot know rules. It is at these junctures that a knowledge of wave personality can be invaluable”.

    Therefore, if we take a step back we can should try and characterise the three major moves down in the market since the highs and their personality. In doing so, it confirms we have seen (5) down. For instance, look at the NYSE new lows for wave 1,3 and 5 circle that you have labelled. You will notice, that on each leg down, the number of new lows is getting smaller and smaller (555 in march vs 2901 in nov). Furthermore, in terms of breadth and downside volume, the most dramatic readings all occured in circle wave 3 you have labelled (advance decline ratio 0.0754 in march vs 0.05 in nov, downside vol -1.876m in march vs -1.962m in nov). The advance decline line failed to make any new meaningful lows as the market pressed down in March. There are more things that i could expand upon but my point is- the character and personality of circle 5 down shows important divergences vs the other major lows we have seen in this bear market. This shows a major loss of downside momentum. This is in keeping with the character and wave personality of Wave 5s.

  14. Anonymous Says:

    I am just beginning to learn about EW, but looking at this current move as C within Wave 4 seems to make sense because the Wave 4 from your bullish scenario looks like a giant downward sloped triangle (again from a beginner’s eye) not a clear upward movement. Also, a note on the feel of this week – it has to some extent the same sense of up / down mania that October had, except perhaps going the other way. And, just like October I am wondering if we will see the next wave down once real economic indicators come back into play – (how can S&P go up almost 4% on worst jobless claims since 1982?!).

    Any thoughts more advanced analysts?

    EH

  15. Miami Web Design Says:

    I just wanted to highlight something that i have re-read of late in the Wave Principle that i think is invaluable to bear in mind at this point. It states, “there are times when several different wave counts are perfectly admissable under all Elliot know rules.

  16. Tampa SEO Specialist Says:

    does it mean that we will never see the Bear Market again? what is the conclusion and is there any development of that analysis since 2008?