Wednesday, May 12, 2010

Dow 1929 and now - video

Here is an excellent video from Jamie Saettele at DailyFX, author of  Sentiment in the Forex Market

Technical Implications from Last Week’s Equity Plunge

There have been just 2 instances in the history of the US stock market (as measured by the DJIA) when a 10% intraweek decline followed a top that was preceded by a 52 week rate of change of at least 50%. Those 2 occurrences were the weeks that ended October 25th 1929 and last week. The former is the week prior to what is referred to as Black Monday (10/28/29) and the stock market crash of 1929.
*I understand that last week’s decline is being blamed on a number of factors, ranging from algorithmic trading to someone hitting a B instead of an M (billion as opposed to million). There is always a ‘reason’ that something might have happened. In 1929, margin accounts were blamed…in 1987, program trading was blamed. Bottom line; it happened. More importantly, it happened after a rally that reversed at the 61.8% retracement .
In both instances, the actual highs occur 8 weeks after their 52 week rate of change extremes (67% in 1929 and 59% in 2010). The 1929 decline occurred following a new all-time high while the 2010 decline occurred following a retracement (of 61.8%) of the decline from the 2007 high. Either way, the implications are that last week’s wild ride is the beginning rather than the end of a larger decline….and perhaps even a crash.

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