Looking Back on the 1929 Stock Market Crash

Mar 5, 2009: 12:39 PM CST

A reader asked me to revisit the 1929 Stock Market Crash through charts and the following chart of the Dow Jones reflects the period from 1922 to 1932 to show you the initial 1922 low and the final 1932 low and what happened in-between as seen on a weekly timeframe.

(Click for Larger Image)

The stock market (as seen through the Dow Jones) started the 1920s roughly at index value 100 then came off those levels into the lows in 1921.  From here, price mounted a remarkable 300% gain in the decade that took price to a final high of 386 before the Crash occurred and the onset of the “Great Depression.”

I’ve labeled a rudimentary Elliott Wave Count to show a powerful Wave 1 and extended Wave 3 without going into too much detail.

The actual price high formed on a Negative Momentum Divergence (not shown) as most 5th Waves have a tendency to do (our price high in 2007 formed on a Negative Divergence on many oscillators as well).

From this level, price began heading lower and then suddenly – literally – crashed in value in the middle of October 1929 to end the “Roaring 20’s”.

A Daily Chart shows the sell-signal up-close prior to the crash.

A Bull Flag formed which had its price-projection target near the highs at 380.  A  Flatline (equal swing) Momentum Divergence set-up at these new price highs, and then a quick negative divergence formed on the absolute price high.

Afterward, price retraced a larger than expected move to the downside, breaking both the 20 and 50 Exponential Moving Averages and forming two New Momentum Lows (new momentum lows often precede new price lows).  Price also broke beneath the most recent swing low at 340 to create a new price low.

After the downswing into 320 and New Momentum Low formed, the 20 EMA crossed ‘bearishly’ underneath the 50 day EMA, which set-up a bearish structure.   Price then rallied up into the confluence resistance area created by this cross – what I call the “Cradle” – and found resistance at this level (price could not close above the confluence level).

That was plenty of information to let you know that the structure had shifted to favor a more cautious approach, if not an aggressive short-selling entry (or at a minimum, long-liquidation).  However, despite as bearish as the structure was developing, it in no way forecasted the magnitude of the Crash.  After the Cradle Trade (and EMA Cross) formed, odds overwhelmingly favored a trend reversal… but the ensuing down-move – or crash – was perhaps more than anticipated.

Unfortunately, investors then did not have computers – or widespread access to charts – at that time.

Looking back at the past can help give us clues, or help us understand the present.

Corey Rosenbloom
Afraid to Trade.com

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  •  I really appreciate your post and you explain each and every point very well.Thanks for sharing this 
    information.And I’ll love to read your next post too.
    Stock Market

  • sfrigo

    I need to know if the 50 Day ema crossed back up over the 200 day ema following the 1929 crash.
    The 50 will cross above the 200 day EMA between the 11th or 13th next week barring a marjor pull back to 950ish. If it also crossed on the fake post 29 rally I will keep my bear hat on.


  • Aly

    This was rather interesting. Although you should lighten this up. Blurting all this information out, doesnt really draw the attention to anyone(my opinion). I do like and enjoy learning about historical events but maybe you should consider making the events more fun. I'm not saying to change the events that occued during that period of time, but atleast talk about how it affected many of the family's, not just"It affected families", say the specific family just give one example of A family that was affected by this. i hope you consider this, with that said, this was a very interesting thing for me to read.

  • Anonymous

    Right? It seems unfathomable. I also agree with the strategy of taking a shorter term stance. However, the idea does merit consideration. Not many ppl. in early '07 thought we would be where we are today (much less 2000). Trading view vs. macro view is always an interesting exercise.
    Thanks for all the effort.

  • I'm with Prechter's count in as much as we're in 3 of (5). Not willing to go on a limb and say we're in 1 of C though - I just can't fathom the bearishness that would mean. If it happens, it happens, and I'll take it one swing at a time, but I'm not willing to believe we're in 1 of a hideous C that could take the Dow Jones to 400. Yes, Dow Jones, not S&P.;

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