DOW crash comparison part 1

On the left hand, the DOW of 1929 weekly chart to get an idea what the worst market in the last 100 years did. The first wave dropped – that’s the one we are in – 48% (although that was within 3 months). What is of biggest interest for us now is the possible exaggeration in short-term windows and in total magnitude. Well, so far the DOW has lost in 1 year 41% as of today. The worst week in 1929 was the week we dropped below 225, being 20% below the weekly Bollinger, although it turned out to be a kind of reversal closing at 273 with a low 212 and a high of 295 after opening at 260. That week, since it recovered most of the losses, just to lose it the next week again. Two weeks later at 195, we had the low until April of the next year (1930) making a 50% rally. Right now the DOW is 12% lower on a Thursday and we are in a real panic selling on the highest Jewish holiday with big volume. It’s anyway a bit spooky the New Year of the Jewish calender is called Judgment Day and that Monday we dropped 777 points.

As you will see in the second part of the chart, we have a chanel formation with a magnitude of 2000 points, which produces the price target of 10400 minus 2000 hence 8400.

As you can see in the 1929 chart, after the 195 low, we traded up to 300 again before going to 100 but that’s another year and that will be the case here as well.

I do want to state though that we at some point will make it down to the 2002/3 lows at 7000.

To come back to the current market and another extreme comparison in the month of the terrorist attack September 2001, the max drop below the monthly Bollinger was 1300 points -as of now we are at 1000 points below. There is only one difference in the basic Bollinger picture, the current drop below is in principle more aggressive as it happens in an already steep drop. In 1929, the drop was more sudden and therefore penetrated lower – that could keep the magnitude a bit lower. So, by all means, we have still the risk of losing immediately between 3-8% and, to some degree, we wıll lose a bit more heading for the weekend. The only point to change would be an immediate rate cut tomorrow but since we have G7 this weekend that might occur also during the weekend (I will not comment on these morons now).

So it’s hard to say what the remaining risk is short-term but we could easily now get the Art Cashin Monday Tuesday turnaround next week after a bit more losses of 3-8 percent from here. Therefore, I do not think the 8% is necessary but possible. More in part 2 a bit later and I will also check the Nikkei situation.


~ by behindthematrix on October 9, 2008.

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