By my reckoning this ‘shoe’, or the fear of the next bear market, continues to be an overarching theme with investors. And I found an article in this weekend’s Barron’s that really bears this out, “Dow-pocalypes Now” (2/15/2014). “Dow-pocalypes” is another work by famed stock market diviner, Randall Forsyth. Mr. Forsyth, at least in the first half of the article, does a really good job addressing a recent flurry of media on a chart comparing the current market chart formation to that of the top that occurred in September of 1929 (we discussed this Session 87). Of course, Randall does not disappoint in the second half of the article as he goes back to his usual recitation of woes and fearful analysis. Finally, I would include a link to the Barron’s piece, but the magazine values its output as so insightful (not), you would have to have a subscription to view it. I will include some excerpts later in the post.
Back to the Charts
The second Hulbert Piece, “Scary 1929 market chart gains traction,” notes over the past two months the correlation between Dow 2014 and Dow 1929 continues to hold up and tighten…oh the horror. Hulbert, who usually maintains a pretty level head, seems to go a little far afield here. He posits, “The picture isn’t pretty. And it’s not as easy as you might think to wriggle out from underneath the bearish significance of the chart.” The article then goes on to cite notables (bears), like Doug Kass and Tom DeMark, fretting on the bearish portents of The Charts.
These references and comparisons to 1929 carry a tremendous emotional punch as it was the penultimate market collapse in the last 100 years. It took the Dow Jones Industrial Average a quarter of a century to regain and surpass its September 3, 1929 high of 381.17. At the low point, July 8, 1932, the Dow closed at 41.22. A lot of money (including dividends) was made (or recouped if one did not sell) in that 25 year period. But, for most who lived through it, it was traumatic and life changing, very much like (actually much worse than) our ‘near death’ experience 2008/2009.
Referring to Hulbert’s piece and the infamous chart, Forsyth says-This seeming prophecy of doom for the market aroused huge interest and notoriety. Writes Raymond James’ long-time strategist Jeffrey Saut in one of his daily missives: “I have been in this business for over 43 years, yet I do not ever recall getting as slammed with the same e-mail as many times as I have about the attendant 1929 comparison chart.”
The notoriety of the 1929-parallels chart probably says more about investors’ fragile psyches than anything else. “Forget about all the policy, structural, etc. mistakes that fundamentally caused the Great Depression, which are not present currently, the emotions stirred up by this chart have been amazing to me,” continues Saut.
To put a fine point on the current market relative to the 1929 chart, the 1929 top and any other major tops, bear markets do not typically begin during periods of extreme fear and skittishness; such as that exemplified by Mr. Saut’s testimony on the reaction to the aforementioned well-worn chart. On the other hand, big and scary corrections do happen in long-term bull markets, such as the one experienced in 1987 (The severity of which was more due to market mechanics, computerized program trading, and not fundamentals). Saut’s comments are convincing evidence that we are no where near the ‘irrational exuberance’ found at bull market tops.
What do you think?
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