Market Crash 1929: Facts and Ominous Parallels Unveiled

Unveiling Market Crash 1929: Facts and Ominous Parallels to Our Current Era - A Riveting Exploration

Market Crash 1929: Unveiling the Story

Updated Feb 11, 2024

Stock market crash 1929 facts; Never Buy When the Masses are Jumping up in Joy. Sol Palha 

 Introduction: Market Crash 1929: The Story

In the annals of financial history, the Stock Market Crash of 1929 stands as a stark reminder of the thin line between exuberance and catastrophe. This event, often referred to as Black Tuesday, marked the end of the Roaring Twenties – a decade of economic prosperity and optimism – and the beginning of the Great Depression, a period of severe global economic downturn.

The story of the 1929 crash is a tale of a booming economy, overinflated stock prices, and widespread speculation. Large and small investors were swept up in optimism, buying stocks on margin and driving prices to unsustainable heights. However, this speculative bubble couldn’t last forever. On October 29, 1929, the bubble burst, sending shockwaves through the financial world and plunging the global economy into a decade-long depression.

Yet, the 1929 crash is not an isolated incident. It is part of a recurring pattern observed throughout financial history. From the Tulip Mania of the 17th century to the South Sea Bubble of the 18th century, and from the Dotcom Bubble of the late 20th century to the 2008 Financial Crisis and the recent COVID-19 market crash, the same themes of greed, speculation, and disregard for risk are evident.

Each of these crashes followed a period of economic prosperity and market optimism, where caution was thrown to the wind and speculation ran rampant. Each ended in a market crash, where the bubble burst, and panic selling ensued. Yet, a unique buying opportunity emerged when the dust settled in each of these crashes. As the masses panicked and sold, contrarian investors who understood the intrinsic value of assets stepped in, buying when prices were low and reaping the rewards when the market eventually recovered.

The story of the 1929 market crash, and indeed all market crashes, serves as a cautionary tale. It reminds us of the dangers of unchecked speculation and the importance of understanding the actual value of assets. It also highlights the opportunities that can emerge in times of crisis for those brave enough to swim against the tide. As we navigate today’s financial markets, these lessons from the past can serve as valuable guides, helping us avoid the pitfalls of speculation and seize the opportunities that crises can present.

Reflections on Market Turmoil: Lessons from Dow’s Past and Present Resilience

One of the most harrowing corrections in Dow’s history unfolded between September and November of 1929, witnessing a staggering 50% drop. A chilling déjà vu echoed in 2008 when, from September to November, the Dow plummeted from 11600 to approximately 7550, albeit with a slightly milder 34% decline. This historical resonance prompts reflection, emphasizing that stock market crashes, such as the notorious 1929 crash and its 2008 counterpart, shouldn’t merely be catalogued as facts based on fear. Instead, they should be perceived as unique opportunities for strategic investment.

In both instances, the false bottom in November 1929 and 2008 was a cautionary tale. The seemingly stabilizing moments it was turned out to be deceptive, highlighting the unpredictable nature of market recoveries.


Following the trough in November 1929, the Dow embarked on a noteworthy ascent, climbing from approximately 190 to a high of around 300 by April 1930—a remarkable 57% gain. Strikingly reminiscent, the ongoing market trajectory since March 2009 mirrors this pattern, with the Dow currently boasting a substantial 47% increase.

This historical perspective underscores the cyclical nature of markets and the potential for recovery even after severe downturns. The parallel between these episodes offers valuable insights for those navigating the complex landscape of financial markets, suggesting that strategic patience and a discerning eye can turn periods of turmoil into opportunities for substantial gains.


Market Crash 1929:  Lessons and the Ominous Patterns of 2008

In the 1929 market crash, an undercurrent of euphoria permeated the masses, reminiscent of the infamous tulip bubble. A keen observer would have recognized the telltale signs, signalling that trouble was looming just around the corner.

The chart of the Dow in November 1929 starkly portrayed a false bottom, mirroring the deceptive stabilization witnessed in November 2008. The subsequent March 2009 bottom raises intriguing questions about the potential trajectory of the Dow, reminiscent of the historical pattern where successive so-called bottoms led to a staggering 90% loss in total value.

A pivotal indicator emerges – should the Dow breach 9800 on low-volume trading, a clear warning signal for a formidable correction may be on the horizon. Traders willing to delve into the intricacies of the market are encouraged to monitor these ranges closely. For risk-takers, considering short positions in stocks like AIG, especially through the purchase of puts, or LEN, could be a strategic move if the Dow reaches the specified levels on low volume.

Acknowledging the markets’ exuberance, a cautious stance is advised. Waiting for a substantial pullback before initiating new positions aligns with risk-to-reward models providing notably high-risk readings. This approach, reinforced by prudent decision-making, echoes a market update from September 15, 2009.

As the markets have gotten so ahead of themselves, we will wait for a decent to solid pullback before we open any new positions unless we especially issue entry points for specific stocks. Our risk-to-reward models are giving extremely high-risk readings; when this happens, it is prudent not to go against them—MarketUpdate Sept 15, 2009.

 The Crucial Role of Patience and Discipline in Successful Investing

In a landscape where the herd is increasingly adopting a bullish stance, the wisdom of blindly following the crowd comes into question. Successful leaders in investing recognize the necessity of making tough choices, often requiring them to look in a direction contrary to the prevailing herd mentality—a trend that the majority may find disagreeable. This emphasizes the indispensable role of patience and discipline in the decision-making process, two key elements that set successful investors apart in the dynamic and often unpredictable world of financial markets.

Our risk to reward models continue to issue very high readings and are close to setting new records indicating that jumping into the market now is not a wise choice. It’s time for traders to start keeping a diary again; this time instead of dealing with fear as was the case late last year and early this year you are going to be dealing with euphoria. You will see that the result is the same and that is why we have repeatedly stated that trading based on emotions is a perfect recipe for disaster. When it comes to trading, there is no place for Joy/euphoria and even less place for fear. Be a practical trader, not an emotional one. Market Update Sept 22, 2009.

Analyzing Disparities: Dow’s Potential Rally Amidst Economic Shifts

In contemplating market dynamics, it’s crucial to acknowledge inherent differences over time. On a percentage basis, the Dow could exhibit a significantly higher rally, considering the market’s expanded participant base, now multiplied by at least a factor of 100. However, the present scenario presents unique challenges compared to 1929. The U.S. currently grapples with a staggering deficit exceeding 11 trillion dollars, starkly contrasting to a bygone era.

In the 1920s, the U.S. held a prominent position in manufacturing, distinct from the current landscape, where consumer spending constitutes over 70% of the GDP. This shift prompts a nuanced understanding—when a substantial portion of the economy relies on spending, an inevitable reckoning looms, whether sooner or later. The comparison underscores the evolving economic landscape and the intricacies that shape market trajectories over time.

Debt Dependency and Economic Foundations: Navigating the Path to Sustainable Growth

In scrutinizing economic growth, a critical perspective emerges: consumer spending, while significant, creates no lasting value. The bedrock of long-term prosperity lies in investing in capital goods, not perpetuating a cycle of increasing debt. An economy reliant on a foundation of debt can only sustain growth by accumulating more debt, leading to an inevitable collision with a metaphorical brick wall. This predicament is evident in ongoing efforts to mitigate economic challenges through continued debt accumulation, resulting in a foundation built on precarious “paper bricks.”

China’s strategic focus on robust investments in capital goods, such as new infrastructure, manufacturing plants, and power facilities, positions it as a formidable contender for the world’s largest economy. Drawing parallels to historical shifts in economic supremacy, China’s trajectory mirrors the pattern observed when the United States surpassed Great Britain.

Considering this, a cautious outlook on the Dow emerges. If historical patterns hold, the Dow might shed 90% of its value, with an implied drop from its all-time high of roughly 14000. While not asserting an exact replication of past events, the current economic scenario appears graver than that of the 1930s, warranting careful consideration. The assertion remains that the worst might be yet to come, emphasizing the fragility of the economic foundation and raising the possibility that the lows of March 2009 may not prove resilient.


Navigating Disguised Opportunities: Lessons from Dow’s Historical Bottoms

Reflecting on the Dow’s tumultuous history, an intriguing pattern emerges. The initial bottom in November 1929, later revealed as a deceptive precursor, set the stage for a colossal correction. A remarkable 13 years later, in 1945, after establishing a long-term bottom at 40, the Dow struggled to surpass the earlier touted bottom at 190. Only towards the end 1945 did the Dow gather the momentum to breach the 190 threshold.

Embedded in this historical narrative lies a recurring theme: every disaster and failure serves as an uncharted opportunity waiting to be seized. In July 1932, as the Dow plummeted to an unprecedented low of 40, it presented a rare chance to transform a modest investment into a multimillion-dollar fortune. The key takeaway is that while pinpointing the exact bottom is an elusive endeavour, starting to invest around April 1932, despite a further 45% drop from roughly 60 to 40, would have yielded exceptional returns.

This historical perspective underscores the potential hidden within moments of crisis, encouraging a forward-looking mindset that recognizes adversity as a precursor to untapped opportunities.

Navigating Economic Crossroads: Signals of Shifts and Challenges Ahead

Even in the face of a 50% higher entry point at 90, the historical Dow charts reveal remarkable fortune for investors. Intriguingly, our long-term analysis indicates that from the end of March 1932, the Dow exhibited a series of substantial positive divergence signals—a pattern meticulously preserved for potential future use. Should this pattern resurface, it could herald the “mother of all buy signals,” representing a strategic turning point.

However, the present demands attention to what may be considered the “father of all sell signals.” The persistent housing crisis, a faltering commercial sector, ongoing job losses exceeding 200,000 per month, cautious consumer spending, and the looming threat of hyperinflation create a challenging economic landscape. Amidst these uncertainties, the feasibility of a new bull market seems improbable.

Recent data underscores the gravity of the situation, with consumers drastically reducing borrowing in July, marking the largest recorded decline. Americans, grappling with job losses and economic uncertainty, prioritise debt reduction and savings. This shift, while essential for household financial recovery, poses challenges for economic revival, given that consumer spending constitutes 70% of economic activity.

The Federal Reserve’s report reveals a credit contraction of $21.6 billion, surpassing economists’ expectations and reinforcing a long-term trend change. Such shifts seldom conclude swiftly, typically spanning several years. This subtle yet significant transformation hints at potential challenges ahead, especially as consumer spending, a vital economic fuel, undergoes a profound shift with lasting implications.

Unveiling Fragilities: Indicators Casting Doubt on a Long-Term Bull Market

Amidst the market dynamics, several indicators cast shadows on the sustainability of a long-term bull market. Notably, volume concentration in a handful of stocks, with AIG frequently accounting for over 30% and sometimes 40% of total volume, raises concerns. As other significant volume generators, Fannie Mae and Freddie Mac contribute to a trend that may be unsustainable in the long term.

Global trade provides another compelling indicator, with Japanese exports still lagging by 37% from their peak. The ripple effect is evident as Toyota, the largest carmaker globally, announces the unprecedented decision to shut down an assembly plant for the first time in over 70 years. Meanwhile, consumer confidence continues to plummet—a critical concern given that consumer spending constitutes over 70% of the GDP.

These factors collectively paint a picture of fragility, indicating potential challenges ahead. The skewed volume distribution and global economic indicators underscore the need for cautious optimism and strategic consideration of the broader economic landscape.

A Glimpse into Smart Money’s Strategy and Ominous Trends

Recent market activity reveals significant insights, especially considering the highest volume day in the past 30 days on September 1st, followed closely by the second-highest volume day on the 17th—both concluding with the markets in the red. This pattern suggests a strategic move by smart money to trim positions, particularly evident as the Dow closed negatively on September 23rd despite hitting an 11-month intraday high.

The situation becomes more pronounced when considering the potential confirmation of a corrective phase if the Dow closes below 9600 on a weekly basis. Volatility readings surpassing 1000 signal an expectation of extreme market actions, both upward and downward. The prolonged correction timeframe indicates the likelihood of this being the most formidable correction since the rally’s inception in March 2009.

These nuanced market indicators prompt a cautious approach, urging traders to brace for heightened volatility and a potential shift in the market’s trajectory.

Following the Crash of 2009, the economic outlook shifted, which is the current situation moving forward. It is important to note that although market crashes such as the one in 1929 can be concerning, they can also provide great opportunities for long-term investments.

Market Update Reflections from September 2009: Identifying Pivotal Reversals 

In the September 2009 Market Update, key observations signal potential market trajectory shifts. The Dow, reaching as high as 9917 on the 23rd, concluded the day negatively, marking a pivotal reversal day—a typical precursor to a corrective phase. The analysis suggests that if the Dow fails to surpass 9600 promptly and sustains this for at least five days, the likelihood of an intensifying correction becomes prominent.

The outlook, rooted in the current pattern, leans towards a correction rather than a crash. While there remains a decent chance for a post-correction rally to new highs, confirmation might come with a move below 9000. Looking ahead, a longer-term view hints at the eventual breaking of the March 2009 lows and a resumption of the downtrend. Further details on this projection will be explored in forthcoming updates.

Market Sentiment and the Drift of Least Resistance Hypothesis

In the August 1, 2019, update on the 1929 Crash viewpoints, the readings of both Bullish and Neutral sentiments at 36 provide a noteworthy insight. This data suggests that the masses are yet to fully embrace the current bull market, laying the groundwork for a new hypothesis.

Examining market sentiment reveals an intriguing pattern; bullish readings have not significantly exceeded their historical averages. In light of this, a hypothesis emerges—one that may seem counterintuitive under different conditions. The proposition is that when the bears are subdued and the bulls are only marginally active (as observed presently), the market tends to drift in the direction of least resistance, and in this scenario, the path of least resistance is upward.

Reiterating a previous stance, the note emphasizes the desire for the market to release some steam, but it acknowledges the absence of a rule mandating compliance with such requests. Consequently, the strategy remains diversified, with new plays continually issued, ensuring eggs are not all placed in one basket.

The overarching philosophy underscores that if the market does pull back, it becomes a bonus, aligning with the perspective that in an upward trend, the stronger the deviation, the greater the opportunity. This nuanced approach reflects a dynamic understanding of market behaviour and the strategic flexibility required to navigate evolving trends.

There are more things to alarm us than to harm us, and we suffer more often in apprehension than in reality.
– Seneca, 4 B.C. � 65 A.D., Spanish-born Roman Statesman, philosopher

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