Comparing Today’s Bear Market to the 1929 Crash

Back in November 2008 I wrote a post titled Understanding Bear Market Price Swings Through History which compared the current bear market to the great depression (1929 crash) by using the Dow Jones Industrials. I asked myself, what has changed since then?

Alot. Now that the current bear market has worsened and taken the title as the worst bear market since the Great Depression I wanted to update my chart of the Dow Jones for the latest data. What new comparisons can now be made between the two?

Citing the original article to explain the phenomenon known as bear market rallies, “Bearish sentiment causes violent sell offs that eventually turn into rallies. These rallies always seem to be just large enough to trick some investors into believing the bull is back. And like a roller coaster before its next drop they are surprised to see the drama start all over again.”

With yesterday’s sharp rally of 6% it seems a bottom, while most likely temporary, has been put into place. Thus we can update our charts and compare today to the crash of 1929 - 1932. First we have the Dow as of today’s market close.

And for comparison we have the Dow Jones Industrials stock chart of the 1929 - 1932 bear market provided by Tom Denham from Elliotwave.com.

Several points stick out when comparing these two charts thus far:

1. The 1929 - 1932 bear market was three years in duration, we are currently at about half that or 1.5 years. Whether or not the current bear market lasts three year is irrelevant. The point is we still can use much more data to make a direct comparison.
2. In the first 1.5 years the 1929 crash had about four major downswings (7 total by the end), today we’ve had five. Note the August peak to November lows could be classified as only one downswing versus two thus the total would also be four.
3. The last sell off in 1932 was the most severe of the whole bear market (-55%) but our last sell off was only -29% (yes only) so for investors that believe bearish sentiment is the worst just before the bottom then the argument can be made that we are not yet at the final bottom for the current bear market.