Stock Market Crash Pattern Predicts Future Bear Market Behaviour

By: Joseph_Rouse

Permitting history to predict the future: The astonishing similarities of the DJIA chart from 1929 to 1932 and today.

Chart patterns are very useful to understand human behaviour as it relates to the “herd mentality”.  If we view and overlay the performance of the DJIA from July 2008 to December 26, 2008 and July 1929 to November 1930 we can see a frightening similarity between the two charts and a predictor of future behavior:

The similarities are striking.  The conditions that existed in 1929 to create the downward action in the DJIA seem to have reappeared today, by viewing the nearly identitcal behavior in downside momentum.  I'll leave it up to the economists to eventually come to a consensus, after the fact, to exactly why our pensions and investments, as well as the health of the middle class worker, will be severly econmomically compromised.  What I can surmise from the above illustration, is that the behaviors of the DJIA in 1929 and 2008 are almost identical.

Inserting the overlay of 1929 to 1932 DJIA chart performance with the July 2008 to December 26, 2008 DJIA chart performance, adjusted for time, portends a bleak two year outlook for our portfolios:

Again, using the 1929 to 1932 chart as a barometer, we have potential downside for the year 2009 of a 31% decline of the DJIA to 5875, and the elusive “bottom” not arriving until July 2010, when the DJIA falls to 1448.  The crosscurrents of economic theory create too many “what if” scenarios that alter outcomes of market projections.  One thing we know for certain is human behavior can be measured, and often can repeat itself (as evidenced by our first chart in the sequence).  2009 will be an interesting year to be sure.

Happy New Year!

By Joseph Rouse

http://www.federallyreserved.com

Joseph Rouse is a CPA living in Long Island, NY USA. Mr. Rouse is the President of National Tax Review Corp., and Allstaff Leasing Co., Ltd., providing tax, accounting and payroll solutions as well as financial advice to his clients since 1984. Author of "If Everyone were Rich, who would make me dinner", commened website www.federallyreserved.com in late september, 2008 to provide market direction analysis and opinion regarding today's turbulent financial matters.

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