• Is a 1929 Style Crash Right Around The Corner?

    by  • February 11, 2014 12:02 pm • Breaking News, Broad Market Analysis, Media Appearances

    We’ve been hearing a lot lately how the path of the current stock market looks a lot like what we saw near the 1929 peak.  This of course was right before the Great Depression and a huge stock market crash.

    It was brought up by another guest during my CNBC spot in late January and again by Mark Hulbert in MarketWatch today.  So this idea is definitely gaining some traction.

    Here’s the chart that has everyone worried.  The current path of the Dow looks eerily similar to the path it took ahead of the crash in ‘29.

    Now here’s where I take issue with things.  First off, as I started noting last week - there is a lot of fear out there, consistent with rallies, not sell-offs.  But check out that same chart above, except looking at the percentage gains.

    That same chart that is causing so much fear doesn’t look so similar now, does it?  The rally into the ‘29 peak was a historic blow off top.  I’m not saying this current one isn’t getting ahead of itself, but this is a more ‘apples to apples’ comparison if you ask me.

    Lastly, the Dow is currently up the past five years in a row.  The streak in the ’20s ended in year five (1929), so did the one in the late ’80s (1990).  Of course, we did have a streak of nine straight up years in the ’90s, which brings us to the current streak.  Will it be up six straight years for just the second time the past 100 years?  Well, one thing that I find encouraging is this is actually the ‘weakest’ 5-year rally, up ‘just’ 88% heading into this year.

    In other words, we’re up ‘a lot’ here, but things might not be as stretched as the masses think.  And that parallel to ‘29?  I think it is used to create page views.  The same reason I put it in the title.

    About

    Ryan Detrick is the Senior Technical Strategist at Schaeffer's Investment Research in Cincinnati, Ohio. He joined Schaeffer’s in 2003 and is a frequent speaker and writer on stock market and economic issues and is widely sought after by financial media for his expertise and commentary. Mr. Detrick is a common guest on CNBC, Fox Business, and Bloomberg Television and has been quoted in outlets such as The Wall Street Journal, BusinessWeek, USA Today, Reuters, the Associated Press, and others. With a decade of financial industry experience in the investment and financial services area, strengths include short-term trading with an eye toward timely technical- and sentiment-based trading opportunities, and advanced option trading strategies. Mr. Detrick received a BA in finance from Xavier University, an MBA in finance from Miami University, and has earned his Chartered Market Technician (CMT).

    http://schaefferstradingfloor.com/