If you look at the Dow Jones from the bear market of 1937-1938 and compare it to our current Dow Jones chart from 2008-present you will see that the similarities in price action are practically mirror images. The chart on the left shows the daily chart of the Dow from 1937-38 and the chart to the right shows the present market. The comparision is striking.
In early fall of 1937 the Dow crashed sharply by about 35% before hitting a temporary panic bottom the second week of October. Last fall 2008, the Dow crashed sharply by 33% before hitting a temporary panic bottom the second week of October. In late fall 1937 the Dow had multiple snapback rallies that eventually rolled over and resulted in new price lows at the end of November. This SAME thing occurred in our current market last November 2008 when the October lows were pierced temporarily before a bounce ensued into Christmas!
Between December and January the 1937 Dow played ping pong up and down for a little while. So did our current Dow during that respective timeframe.
Finally, the 1937-38 bear market rolled over in late February and saw its final low in late March with very similar selling structure that our 2009 March low experienced! Just unreal.
Similarly to our recent explosive 40%+ rally off the March lows, the 1938 bottom also saw similar gains into the summer months when price began to fade and retrace a bit. Still the pattern into the fall of 1938 shows that the Dow exploded even higher and finally drifted mostly sideways into end of year.
So does that mean this is where our current market will follow into the 2nd half of 2009? Who knows, but this is definitely an interesting comparison to watch until the correlation subsides.
So what happened with the Dow in the year or two or five years after 1938? Price sold off in early 1939 but had a recovery later that year. In 1940 the market saw another significant selloff which resulted in downtrending stock prices until the ultimate low was reached in early 1942. Afterwards, a very large bull market finally emerged. So even after that initial peak was reached in late 1937, the Dow did not see new highs again until 1946. Nine years later. In other words, a hell of a long time.
Is that where we are headed? Only time will tell..