market folly

Adam and MarketClub just posted up an interesting analytical video where they look at whether or not this is deja vu all over again for the stock market with historical comparisons to 1929. They examine the current 2010 market and outline the similarities to past markets. History often repeats itself, especially in market patterns. Adam notes that this chart is not meant to scare people, but rather to keep in the back of your mind as a possibility given the ferocious nature of bear markets and their massive gyrations. After all, people often become complacent when everything is fine and dandy and stocks are heading higher. The red underline in the chart below highlights the part of the historical pattern that the 2010 market has already completed. As you can see, the 1929 market fell drastically lower after completing that pattern. Click below to watch their analytical video:



They highlight that investors are nervous, especially the babyboomers who are worried about their retirement funds. If the market starts to drop dramatically again, you can bet there will be a stampede to the exits of investors wanting to preserve what they have left. Just like the market of back in the 1930's, this market has seen a massive sell-off and a strong reflexive rebound. The same pattern occurred back then and was followed by a massive leg down. Now, obviously we're not in the Great Depression, but we've certainly been in the great recession. While the severity of that 1929-1933 bear market might not be replicated, there are still chances we could see the massive swings so often associated with bear markets.

Again, this is only to highlight possible historical similarities and is not meant to be some harbinger of doom. In the markets, it always pays to be nimble and to avoid complacency. Keep your eye on the fibonacci retracements and the overarching technical pattern of the stock market for clues as we go forward. As they always say, the trend is your friend.