Thursday, January 31, 2008

Party like it's 1946.

The current market decline is looking more and more like the prelude to the 1946 market crash, the only difference being the magnitude and speed of the decline.


The pattern this time is progressing more slowly by about 2-to-1, but the dips and bumps are larger on a percentage basis. By this point in 1946 the market had fallen 8%, while today the market is about 15% off of its October '07 high.

What followed after July 1946 made the prelude look like a walk in the park, as the market fell a total of 22% from its preceding high:


This time I expect the crash conclusion to be proportionally larger, with the bottom around 40% below the high mark.

If the market continues to follow the 1946 pattern (and that's a big "if"), then the current rally will continue until the end of February, reaching about 1450 on the S&P. After that we would expect a free-fall through March and April to the target price of Dow 8500/ S&P 940.

1 comment:

Cathy said...

The congruity of those graphs is spooky. Loved the juxtaposition of the cars.