Remember the 1929 Stock Market Analogue From February……Well!

In February there was a chart floating around showing that the current stock market was running a 1929 analogue.  Tom DeMark the famous technical analyst drew attention to it and was very nervous.  He said we could crash soon.  Many people in the mainstream media dismissed this notion and they were right because we rallied to new highs.

It came to my attention this week, while talking to the smartest Quant/PM on the Street, that we are currently running a 94% correlation to the 1929 chart pattern.  Does it mean it will unfold?  No of course not!  However, I am already predisposed to the bearish side of thinking and believe that a crash is more likely than not due to the Frankenstein monetary manipulation, the lack of a meaningful correction in two years, the length of the current bull run (66 months which is 6 months longer than the previous record), the ending of QE and finally the excessive amounts of leverage involved in this advance.

I was so intrigued I shared this insight with my buddy Tim Wood.  Tim was intrigued as well and provided the above graphs.  1929 is on the left and todays market is on the right.  He does not do analogues but he found that there was an eerie pattern of trading cycle and half trading cycle lows and highs that look very similar to today.   They are denoted by the letters.  Granted the current cycle has more days in between highs and lows and the scaling is different but notice how both are occurring in the August- October time frame.  Certainly a better calendar fit than February.  We are likely at point f compared to 1929.  If the pattern were to unfold the current rally will fail within a short time period and proceed to point h which would be a 12% correction from point g.  That would be a standard garden variety correction which we have not seen in quite some time.  Regardless of this 1929 analogue this is what I was expecting to see unfold anyway.  My forecast is not based on this but it certainly does not hurt my case.  Will the rest of the 1929 pattern unfold? Well lets see what happens when/if we get to point h.  As a bear I would be happy with point h.  Do I think this pattern will complete?  I have no idea and I really hope it does not because that would be a huge bummer for the country.  However, the market does not care what I think and it will do what it will do.

The rally from this point is key for the bulls.  A failure here would most likely take us below the August 7th low in the Dow and all sorts of technical damage will have been done at that point.  I have noticed an increase in the volatility in the intraday moves and more damage in this correction than all the prior corrections.  Deflation is weighing on the market and today the Fed is trying to Jaw Bone the $Dollar down.  I sensed some fear in the Fed minutes today.  The $Dollar concerns them because they really can’t control it.  It is a sign of their failure to normalize policy without a disaster.

What is interesting about this analogue is that it seems more relevant today than in February.  The difference is the MSM is not really calling it out this time.  I would not recommend setting up trades based on this but it sure is creepy seeing this unfold.  All my friends that manage billions of dollars in equities are miserable and underperforming.  Good luck and be careful out there.  This market is shredding everyone.