A Very Scary Chart

Discussion in 'Stock Market' started by Zander, Jan 10, 2010.

  1. Zander
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    Zander Platinum Member

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    As you can see, all labels, dates and prices have been removed. One of the above charts dates back to a period encompassing parts of 1929-1930; the other shows a more recent picture. I'll let you guess what happened in march of 1931........
     
    Last edited: Jan 10, 2010
  2. Toro
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    Toro Diamond Member

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    A 52% retracement is not uncommon. According to technicians, you will find retracements throughout market history, not just in 1930.

    What is Fibonacci retracement, and where do the ratios that are used come from?

    To compare today to 1930, one must understand what happened in 1930. In the fall and winter of 1930, the country experienced a wave of bank failures, which caused a withdrawal of deposits and reserves from the banking system, marked by the failure of The Bank of the United States, which many foreigners thought was the Fed.

    Bank of United States - Wikipedia, the free encyclopedia

    The ratio of currency to deposits in the summer of 1930 was quite low, meaning that even nearly a year after the 1929 crash, people still had confidence in the banking system. By 1932, the ratio of currency to deposits was at highs as people pulled their money out of the system. Bank reserves fell by a third. Nearly half of all financial institutions failed. What was really interesting was that depositors did not discriminate based on financial strength of the bank. Banks that were rated as strong as the average bank or even stronger failed at a greater rate than weak banks as depositors panicked and withdrew from the system. This lead to the creation of the FDIC, of which both Milton Friedman and Ben Bernanke attribute to the bottom of the Great Depression.

    Today's environment is very different. Whatever one might think of the government's policies, the government is responding with a direct eye on what happened to the financial system in the 1930s. Today, bank reserves are at all time highs and the number of bank failures have been limited, about 150 compared to 1600 that failed during the S&L crisis and 4500-5000 during the Great Depression.

    That does not mean that we aren't topping here and the market will not fall, but the analogies to the Great Depression must be understood in the context of the responses of the governments, which have been very different.

    Of course, what the government is doing is inflationary (which is why I bought a bunch of silver options a few weeks ago), and will certainly have unintended consequences down the road. But right now, the government's actions are buoying asset markets around the world. FYI On March 10, the S&P 500 bottomed at 667. On Friday, it closed at 1145, a 67% gain. The bounce in the Dow in 1930 was a 50% bounce.
     
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    Last edited: Jan 11, 2010
  3. Paulie
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    Paulie Platinum Member

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    I think it would be rather naive to use a chart pattern from 80 years ago as any kind of current technical indicator.

    That both charts look rather similar, really shouldn't signal any kind of definitive continued similarity. After 80 years, not to mention the differences Toro stated, it's pretty tough to assume the pattern will automatically continue to match.
     
  4. Zander
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    Zander Platinum Member

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    Maybe, maybe not. The chart price patterns are eerily similar, as are the economic conditions we face. The past has a way of repeating....

    Of course, you can and should do whatever you want, it is your money and your life. Personally, I am sitting 100% in cash. I believe we are about to enter Elliot wave 3 of the current downturn. Wave 3 patterns are strong and fast. I believe the US stock market is going to fall harder and faster than it did last year. If I am wrong, I will make a little less money, not a big deal. I value safety far more than return right now. But if I am right, I will make a very large return for relatively small risk. Either way, I will be sleeping very well at night.

    Best of luck!
     
  5. xotoxi
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    xotoxi Platinum Member

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    I have no idea what you guys are talking about, but I wanted to post in this thread.

    Thanks.
     
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  6. hvactec
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    hvactec VIP Member

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    Yes Marc Faber prediction that the market is not going to be pretty in 2010
     
  7. william the wie
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    william the wie Gold Member

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    I agree with your conclusion but LEAP collars are the way to play. there are a lot of head fakes ahead of us and covering prior to Nov.1 could hurt you. When the market moves buy another collar on the assumption that the Fed will intervene and might be temporarily more successful than you expect. Eventually the pain will be too great and the market will drop but you have no way of knowing when. Your highest puts will bring in the most money on the downside and your lowest call the most on the upside. The wildcard is a flight to safety if there is another sovereign default.
     
  8. mal
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    mal Diamond Member

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    If you are Hoping for a Crash, you can Find Data to Support your Delusions...

    Congratulations on that.

    I bet you didn't Predict the Market going back up to the Mid-10's when it was Dumping and we were Losing 700,000 Jobs a Month...

    Spring's coming... Jobs will be Created... Growth will Happen. Nothing like Clinton and (43) Years, but Growth and Job Creation all the same.

    The 15 Years of Irrational Exhuberance that was Fuled by PISSPOOR Lending Policies and Inflated Home Prices, along with Individual Citizen and Business Greed, will NOT Repeat itself unless another Computer/Tech Style Boom happens...

    Whatever that thing may be.

    Until then, Learn to Live Moderately... It's the Right thing to do.

    The Me Generation is going into Nursing and Longterm soon, and their Spawn will be Fantastically Appauled at thier Lack of Inheritance...

    Get a Helmet and get a Job...

    Nobody's above Working at Walmart.

    :)

    peace...
     
  9. Zander
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    Zander Platinum Member

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    Actually I did predict the upturn in March of last year and profited from it. I liquidated on August 30th- locking in about 90% of the rebound. It has been essentially sideways since then.

    PS- I don't use fundamental analysis, I rely on Elliiot Wave patterns. Those technical charts are indicating that we are in for a major decline. Actually, it is not major, it is EPIC. Good luck!
     
  10. Paulie
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    Paulie Platinum Member

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    Well Zander, if you're right, I'll be ready and waiting to buy some more equities near the bottom! DOW 6600 and S&P 660 will be strong supports.

    Do you think we're going to break those?
     

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