In today's short video we examine the crash of 1929 and the similarities to today's Dow. This video is not meant to scare anyone, but to educate investors and traders of the possibilities that may exist in today's market.
We could be, repeat, could be very close to a tipping point similar to that of 1930 when the Dow had ended a 50% correction to the upside. I invite you to watch my latest video and see what makes sense to you.
As always our videos are free to watch and there are no registration requirements. If you agree or disagree with this video please feel free to comment on our blog.
Every success,
Adam Hewison
President, INO.com
Co-creator, MarketClub
I used to be very happy to find this web-site.I wanted to thanks in your time for this wonderful read!! I undoubtedly enjoying each little bit of it and I have you bookmarked to check out new stuff you blog post.
Cris,
Thank you for your feedback.
I'm going to use a quote from Walt Disney's the Lion King.
Adult Simba: I know what I have to do. But going back will mean facing my past. I've been running from it for so long.
[Rafiki hits Simba on the head with his stick]
Adult Simba: Ow! Jeez, what was that for?
Rafiki: It doesn't matter. It's in the past.
[laughs]
Adult Simba: Yeah, but it still hurts.
Rafiki: Oh yes, the past can hurt. But the way I see it, you can either run from it, or... learn from it.
On a more serious note trade triangles would make a fortune based on the '29 crash.
All the best,
Adam
Adam,How about a video of how the trade triangles would have worked during the 1929 - 1933 period?
Great work Adam. "The future lies in the past" or something to that affect - how very true. To think, it could never happen to us, is a fools game.
Michael,
Here are the levels that you need to watch in February for all the major indices. S&P 500 key level to watch 1,029.38, NASDAQ key level to watch 2,024.27, and Dow Jones at 9,678.95.
All the best,
Adam
Hi Adam,
Thank you for a very informative video.
It's funny how back in 10/2007 when the high on the SP500 was at 1576, any body who suggested that in 17 months the SP500 would be at 666 would have been laughed out of the building and escorted to the nut house. It just couldn't happen because of the global economy, all the safe-guards and regulations that our government had in place, etc... Well, we all know what happened. Anything is possible in the market!
I really enjoy the video and found the information you presented to be very valuable for planning purposes so that hopefully we can stay on the right side of the market regardless of what happens. The scenario you presented may or may not play out, no one knows for sure, there's no guarantee in this business, but as traders, people should be open minded, be prepared, and trade accordingly. That's all.
Thanks again for the heads up.
More people than not have lost tons of money by following the phrase "It is different this time".
The forces that influenced the stock market in 1929 are still influencing the market today. These forces are called supply and demand.
Listen to what the market is tellling you then act accordingly.
Adam - In the video you mentioned the numbers where a red monthly triangle might occur on the Dow. I have not been able to locate them on the blog. Will you please provide these numbers for the Dow, S&P 500 and the Nasdaq.
Thanks.
President Obama, Bernanke, and Jim Cramer are in a MOVIE about hedge funds called "Stock Shock." Even though the movie mostly focuses on Sirius XM stock being naked-short-sold to near bankruptcy (5 cents/share), I liked it because it exposes the dark side of Wall Street and reveals some of their secrets. DVD is everywhere but cheaper at http://www.stockshockmovie.com
Hi Adam
Thanks for an insightful video.
What I dont understand is how some people seem to think that the government intervention is a protective measure.
My understanding is that this intervention just prolongs the inevitable and increases the pain and suffering during this time.
I would be interested in your comments
Thanks
Sean
Sean,
Thank you for your feedback.
I do not believe that the intervention by the government is going to change anything in the long. In fact I think it's going to exacerbate the problem.
Capitalism has its own cycle that runs on and can be enormously rewarding and also punishing at times. The key to being a successful trader in my humble opinion is to be flexible and to listen to what the market is saying.
You only have to look back at some of the markets that have crashed and burned in the past to understand that even with all positive statements and cheerleaders markets do implode at times.
I hope this addresses and answers your question.
All the best,
Adam
Francis,
Thank you for your feedback.
He said it exactly sentiment and confidence is what drives the market and that is what we call perception.
All the best,
Adam
I agree that history can be our teacher. 1929 is just one of the many charts. Actually, I see charts from the 1970's and 2004 much more similar up until this point.
Fundamentally, we couldn't be more different.
1. We have learnt the lessons of 1929. In 1929, government did EXACTLY the opposite of what we're doing today - taxes, interest rates, business rescue, etc.
2. There was no BRIC. Emergent economies may save USA or at least buffers its blow. Sentiment and confidence is as important in the economy as in stock market because the economy is made up of people. These emergent markets may just give the West the confidence to move ahead, at least psychologically, but may even materially.
`
Adam,
Thanks for the over-view of the Big Picture.
The great thing about Market Club is that all horizons are covered.
It really doesn't matter whether up or down or by how much,
because with the tools we have at MC, we'll do just fine.
For example:
Today's S&P was a lower Harami Candle on volume of 3.7B;
yesterday was our 2nd Lower High, and could have been the 4th Elliot Wave Up;
my 15-minute intraday S&P chart has a Head and Shoulder Formation,
-- and if the neckline is taken out on the H&S Formation,
it could be curtains for the Bulls.
However, the Big-Boys could try to stem the market downtrend by
pushing the dollar LOWER -- but I think the Bulls are on the ropes at this point, and I'm watching carefully for that RED Monthly Trading Triangle on the S&P Chart.
In the beginning, all those videos in the library were overwhelming, but now it's starting to sink in, and the pieces are fitting together.
The Monthly/Weekly Trade Triangles make the time frames very easy to negotiate.
Happy Trading.
John,
Thanks, I'm glad you enjoy the videos and I am glad it's all piecing together for you.
Like a lot of members of MarketsClub I'm waiting for the red monthly triangle to kick in.
All the best,
Adam
Adam, one should also consider some other historical market patters: specifically Dow 1974 and Nikkie 1989.
- The 1929-WWII period was a secular deflationary bear market, the Dow lost 90% of its nominal value, but consumer prices also dropped so its real decline was less. Through the secular bear market from 1929 to WWII the dow lost 75% of its real value.
- During the secular "inflationary" bear market of 1968 to 1982, the dow traded sideways with big swings but lost 75% of its value after inflation. Same net result as 1929, but because of inflation the dow traded sideways with many tradable cyclical bull and bear markets. The DOWs loss was masked by inflation. The gold dow ratio reached 1, some say we will reach the same ratio again before this mess is over.
- The Nikkie (Japan market) peaked in 1989 and has been in a secular "deflationary" bear market ever since. 20 years later the market is down by 80% but has had numerous cyclical (1-3 years) bull and bear markets.
Conclusion: Secular Bear markets tend to last 14 to 18 years and lose 85% in real terms, assuming the current secular bear started in 2001, it will be at least until 2015 before we enter a new secular bull market where buy and hold is the best strategy. Either way, the DOW is destined to lose 85% of its real value before a new secular bull market begins, so far it is down about 40% in real terms since 2000. The gold Dow ratio will continue to move towards 1..
If inflation is the dominant force, then 1974 market pattern is the best guide. In 1973-1974, the Dow lost 55%, then rallied about 45%, then retraced half that gain (could be where we are today), then went onto new high as a cyclical bull market was in force.
If Debt deflation is the dominant force then the Dow 1929 and Nikei 1989 are the best guide, and we should be buying 30 year treasury bonds and $USD.
We are in the grips of massive debt deflation, but Bernake is doing everything in his power to reverse this natural market force through insane money creation to reverse these forces and induce asset inflation. My guess is that deflationary market forces will prevail, the debt must be liquidated and written off before the economy can grow on a sound basis again. Any asset with debt attached to it will see its price collapse.
The basic premise of the Dow Theory is that the primary trend of the market cannot be manipulated. Bernake maybe able to in the short term, but ultimately the trillions of Dollars will be spent in vain and only increase and delay the inevitable debt collapse.
Adam, please do a video of the Dow in 1974 and Nikie 1989 to show some other possibilities for the DOW.
Sean,
Thanks for an excellent and detailed post.
I totally agree with you in the natural forces of the market. I believe that's these forces will prevail as they always do.
I will do my best to do a video on the 1974 bear market.
Once again thank you for taking the time to detail your thoughts and comments so precisely.
All the best,
Adam
I have 8.5 x 11" charts of 1929 - 1940, 1955 - 1963, and 1970 - 1980 beside my trading desk as a reminder that ANYTHING can happen. I got out of the market in December by comparing the 1929 chart to today, and by using a few salient indicators. We should never underestimate the predictive powers of the past.
And as for all the economic hypotheses presented on this page, I don't believe I've ever seen a rich economist. Even Keynes lost all his capital at one point in his career. But I know a lot of very wealthy traders. The market will tell you exactly what it's going to do...and it never lies. Good luck!!
I feel silly asking this question because I'm a novice at investning, and I'm not sure I understand your cautionary warning using the dates you used at the end of the presentation
You're putting a red trianle at 10, 279.90, but the Dow is already (today) below the next lower Fibonacci pt.of 10096. Today we're at: 10038. So at which point/level are you suggesting to be shorting or on the sideline? Is February 2010 included in this presentation?
Thanks
Brui,
Thank you for your feedback. I've always found that smart people asked questions and I appreciate your question.
Here the levels that you need to watch in February for all the major indices. S&P 500 key level to watch 1,029.38, NASDAQ key level to watch 2,024.27, and Dow Jones at 9,678.95.
Every success,
Adam
This may be a newbie question. Towards the end of your video, you talk about trade triangles which show up in green and red. Is that a proprietary signal or alert? Can you please explain!
BTW, the video provides a nice comparison between 1929 v/s 2009 and to some extent following economic news might support it:
1. Greece near economic financial collapse will be bailed out by rich European Union nations - a short recovery for the mkts
2. Soon more European Countries on verge of default - mkts starts downward trend
By late 2010 to early/mid 2011 we probably reach a bottom or atleast start bottoming out.
Surprisingly, compare Economic Confidence Model to the events of 1929 and today and it kinds seems to match what all is happening....
http://www.nowandfutures.com/forecast.html - today
http://www.contrahour.com/.a/6a00d8341d7ef253ef011570203294970b-pi - 1929
IsItPossible,
Thank you for your feedback.
The trade triangles discussed in the video are all part of the MarketClub.com service. Theses are our proprietary indicators that when used in conjunction with one another are extremely powerful and help filter out bad trades. What we are waiting for now is an indication of a monthly red triangle for the indices. If this should happen it would be extremely bearish for the market.
Here are the levels on the indices where our Trade Triangles will kick in on the short side: S&P 500 key level to watch 1,029.38, NASDAQ key level to watch 2,024.27, and Dow Jones at 9,678.95.
If you are not a member of MarketClub you may wish to take a 30 day risk-free trial to a service. You can find information at marketclub.com.
Every success in the future.
All the best,
Adam
Don't underestimate the power of the President's Plunge Protection Team and the helicopters filled with Dollars the FOMC can drop at the bat of an eye.
Can somebody tell me where to find the trade trainagle levels on the site please? Thanks in advance.
Harry,
Here are the Trade Triangle levels for February: S&P 500 key level to watch 1,029.38,NASDAQ key level to watch 2,024.27, and Dow Jones at 9,678.95.
You might want to take a 30 day risk-free trial to MarketClub. You can get more info here: http://marketclub.com
All the best,
Adam
Comment by an old hillbilly; I noticed people always compare this recession to 1929 but fail to take into account one huge difference. This recession will not be nearly as long or as severe as the depression because of the infusion of cash on a monthly basis in the form of social security payments to disabled and retired persons. These programs did not exist then. There were also no programs to provide food assistance. Don't you republicans just hate socialism!!
Agreed that the indexes look precarious at this time. This has been the case for quite a while as note in previous videos on the S&P, NAS fibs. Also, almost every chart one looks at shows a broken trendline. Then look at the monthly stochastics for the indexes. They are at or nearing the same high levels, with cross-overs, for the first time since 2007 which is really when the big bear market of '08 started.
However, I think a lot of people are looking at the same charts and drawing similar conclusions. When this happens, Mr. Market seldom complies.
Therefore, I think we are gong to have a countetrend bounce for a few weeks to get everyone complacent, then WATCH OUT!
Don't forget that the US depression that started in 1929 lasted until WWII in the early 1940s and that there was a significant market crash in 1938 as a result of bad govenment policy to try to fix the depression. Sounds familiar doesn't it!
Good points Rob -- the depression was only 'corrected' with WWII.
Like you, I have been checking the pulse of the S&P 500 and it has already been giving me a sinking feeling.
I consider that the NASDAQ will be the canary-in-the-cage for any rollover into the abyss, and then the others Indices will follow too...
And like Adam, I am also a baby-boomer so any déjà vu with the 1929 event is going to be catastrophic for us oldies in the 'grey army.'
As the Old Toade says, there is an avalanche of debt still rolling toward us all - the Commercial Property Defaults are only just over the horizon.....
Has anyone in Hollywood made one of those "The Day After....."..movies on this subject yet?
Please don't encourage them - that will certainly trigger such an event...
Good luck everyone
Adam,
Deja' vu; yes it is.
I know you need to remain on the fence (until support is broken)
as this is wise near term, but giving everyone the longer view will hopefully help those "that want to believe it will all be ok" realize
and prepare for the longer view.
Our gov. debt train is is so heavy now, and growing out of control,
that it has become increasingly difficult to disguise it. This year, in addition to Obama's $1.4T deficit budget, we must roll over $1.68T in short term Treasuries due also this year.
Even if China gave us their $2T in reserves.... you get the picture.
Time to hedge optimism in my opinion.
I want to comment to Rick Crocker's comment to my comment at the beginning of this thread. You are absolutely right. Many individuals practicing business, education, medicine, sports, government, religion, and politics worldwide lack appropriate ethical standards and a sense of fiduciary responsibility. While this is a difficult problem to resolve in the short term I do not believe it is a difficult problem to regulate. However, if the law makers refuse to regulate and establish sever penalties for rule violations the problem will not be fixed. As long as the probability of substantial reward for bad behavior out ways the probability of being penalized the behavior will not change.
Thanks Adam. This is a great video. Its good to compare today to 1929 as many of the same conditions that were active then are also active today. One big difference though is in 1929 the US was on the gold standard and hyperinflation was not a threat at that time. Today howerver both the US and Euroland and Japan have too much debt and many people believe these economies are planning major devaluations of their currency this year and next year. This devaluation would drive all markets upwards.
Its also possible that the 1929 forces and the inflation forces happen at the same time causing violent chopping in a net sidways pattern.
I can't say what really will happen but its important to understand the range of possibilities.
Mark,
Thank you for your feedback.
You are right, different opinions are interesting and certainly if you're trading in today's world you have to be flexible. I should have another post out tomorrow that underscores that rule.
All the best,
Adam
My humble opinion is different than the presentation.
Will we have a correction? Definitely.
Will it be on the scale of the depression years? NOT likely...The main reason is macro-economic - the Govt/Fed reacted too slowly in stepping in for an exhausted consumer (roaring 20's) during the depression.
Today, the Govt/Fed moved quickly to re-inflate the economy and rightly so - also Bernanke has the knowledge of the depression and is using this knowledge to ward off any similar outcome. The consumer was spending cash/credit way beyond what is considered normal or prudent and subsequently, have run for the hills, to begin paying down their debt and stop using their homes as ATMs. I quote a recent poll stating that 87% of people did not participate in the March/09 rally.
I would look at more recent events like 73/74, early 80's and even the 2000 collapse, as more likely scenarios that will play out.
The US will have massive amounts of deficits/debt when all is said and done, but they will pay it off with heavily devalued US$.
The outcome is yet to play out, that's what makes differing opinions so interesting. I also hate to disagree with the Good Professor - Adam - because I really like the information he presents...keep up the great work!
Very interesting, i would agree, however, you would have to see similar economic condition for the argument. you have offered this theory, but you need to expand, as a proof. Interest rates, currency. gold price, and growth rate, would need to show a similar pattern. Baby boomers, must buy bonds as they age, a census comparison would be useful. Further, it must be examined in relation to the economic factors worldwide, as the great depression, affected all nations at the same time. We see trade barriers with China, war, and expansion of nuclear powers ie. iran, and world wide terrorism. There are also similarities in cooperation between Europe, Asia, and USA to stimulate their economies. The currency and interest rate game of chicken being played out was the trigger, IMHO that caused the depression. Since the Berlin wall fell, a dynamic shift in nationalism, communism, has occurred. a 180 degree shift, everywhere in the world and you can see the shift in our country with the present administration. You are correct Adam, its 1935 all over again. regards
Jim,
Thank you for your feedback.
At the present time we are neutral on all the indices based on our trade triangle technology. We are waiting for a red triangle on the monthlies to go short or a green weekly triangle to reinstate a long position.
Only time will tell if the 1929 scenario plays out in 2010. As always we will let the market decide which way it wants to go.
All the best,
Adam
I'm curious as to whether or not you compared our current chart with any other charts over the years.
It would be very informative to know how this scenario played out in other similar circumstances.
Jack,
Thank you for your feedback.
The crash of '29 was in my mind the closest comparison we have to what is happening now. Folks will argue that yes it's a global economy and all the safeguards are in place. In my mind it magnifies the problem because were all in the same boat at the same time.
Whether or not the scenario I've painted come's to light will be determined by the market. As traders we always want to have the flexibility to move with the market whether it goes up or down.
I hope this addresses and answers your question.
All the best,
Adam
The video is a little dated and I subscribe to the notion presented but man, are you trying to demonstrate how absolutely WRONG you were with your assumptions? We ran up another 5% past that important trend line. It was painful as I swallowed the Koolaid and went short.
Sorry Jim but trading advice isnt a "free lunch" you weigh up the data and take your chances.Spank yourself for taking the wrong trade.Blame is part of denial...right ??
Thanks for a very timely Heads Up. Nudged me to review my current trading psychology-i.e. a Bull Bias from being right since March. Have been watching this comparison with 1929 for months and not buying it until now; Current thinking- we are experiencing a liquidation which despite all the noise is orderly ( not random, not linear, leaning more to repetitive patterns based on chaos theory). Simply, a liquidation which over the months has brought a lot of money back into the market ( thats why Wall St. wants orderly liquidations) - money that is needed to continue the liquidation ( at the best possible price) while avoiding dirt cheap prices brought on by a panic.
With this newly acquired negative view, I for one will strive to be in cash or short before that red triangle appears on a daily chart- i.e. not waiting for weekly or monthly in this apparent stage of the Cycle.
Again, Thanks Adam
I believe in a total repeat of the Depression-era stock scenario. (including, happily, the extraordinary market upside once it was truly over. That's where Adam's triangles should work spectacularly.)
Adam, I appreciate your caution as presented in this video. However, I believe there are two large differences between now and the 1929 crash. First, today most investors are not in direct control of their investments. They have their money in mutual funds that must stay invested in the market. These funds may sell one stock and buy another but they must stay in the market. They cannot move to cash, currencies, or commodities. They also cannot short the market. Second, most of these mutual fund investments are inside IRAs where substantial tax and penalty disincentives exit for discontinuance. These two differences are major deterrents to the flight from fear pressure that past markets experienced. Because of these differences I believe the scale is tipped in favor of a healthy retracement to an overextended bull market instead of a crash continuation of a bear market..
I agree with some of the above comment. However, mutual funds can move a portion of their assets to cash. As a matter of fact many mutual funds can have 30% or greater in cash. Check the cash positions and see where they are now. You can get that in Barrons for a more accurate picture. Many of them are at an all time high in cash holdings. Each mutual fund is required by prospectus to stay within their guidelines dictated by the prospectus.
These boundaries are determined at public shareholder meetings and meetings of the board to then later be voted on by the shareholders.
Todays environment is much different than the 29 crash but unfortunately different in a negative way. Until we get the oversight necessary to prevent the underhanded dealings of the Senior Mgmt of many of these firms we will not be able to trust or believe anything we are told from Wall Street. I left the industry after 27 yrs as the passion for the business was no longer in my heart. I could no longer with a clear conscious invest money for those nearing retirement and those in retirement knowing that any minute there would be some late breaking story if another scandal that would take the market down. Not to mention the fact that when Moodys or S&P decides to downgrade the safest debt in the world to Junk status, what might happen to this market then.