Monday, August 10, 2009

Two Great Bounces!

The following charts provide a simple comparison between the big stock bounce that occurred in the wake of the DOW crash of 1929 and the bounce we are seeing today in the S&P 500 index.

The method of alignment was simple… take the first definitive up trading day off the bottom of the preceding bear market low and set that as the start of the series… then simply re-base both series to a value of 100 so that they can be compared side-by-side.

The lower bar chart plots the cumulative percentage change since the start of each bounce.

The S&P 500 is up over 39% in a little more than 100 trading days… a very aggressive run with an obvious note of mania to it… and wholly comparable to the price movement seen in the 1930s-era DOW rally.

At this point in the 30s-era DOW, tomorrow would be d-day… no more time to trade out of your positions before the first leg of decline ensued chopping the prior gains nearly in half.

The 30s-era DOW had three large legs up followed by a bit of profit taking that appears to have morphed into a reemergence of the bear trend… Could we be at a similar point?

Only time will tell… But for now, let’s continue to keep a watchful eye…