|Never say... It will never happen again.
|DJIA vs. NASDAQ: Updated Monthly
The monthly close for the Dow Jones Industrial Average (DJIA) is shown in
black and the NASDAQ in red. The NASDAQ (7/1990 - Present) is
superimposed over the Dow (1920-1943) to show the correlation between
the indexes during those periods. The dates, returns and scales pertain to
the DJIA if in black, the NASDAQ if in red. Updated 1/22/2013.
|How can I use this information?
There were those who said that a crash similar to the 1929 crash would never
happen again. The above graph of the NASDAQ amply proves the weakness of
that assertion. In spite of the size of our economy and advances in technology,
flaws in human nature still have the capacity to repeat and even exceed the
excesses of the past. If todays market continues to follow the pattern of the Great
Depression, the rally from point G will be not reach the highs attained at point F. It
will return to the lows established at G as it approaches point H.
Be tenacious about diversification, take calculated risks using sound methods
and reduce your debts to reasonable levels. Debt elimination should be the
ultimate goal. History is sadly full of examples of wealthy entrepreneurs who never
paid off their home mortgage, only to find their fortunes reversed and their homes
foreclosed. Pay off your mortgage so you won't have to worry about a place to
live. Conservatism may limit your upside potential, but you will sleep better if the
markets turn against you. Adopt a life view that copes well with the unknown.
As to the cause of the mysterious nineteen year repetition of history depicted in
the graph above, I offer the following: The similarity could be the result of a
repetition of cyclic forces, manipulation or chance.
A Super Bull Market began around point H and lasted for decades. World War II
is widely given credit for lifting the stock market out of the Depression. This writer
believes that credit is more properly attributed to other forces... Forces that are
included in ForecastChart.com's Secular Trend Indicator. If that indicator is
Bearish, prepare for a long term storm in equities.
J. C. Phillips
Editor of Forecast-Chart.com's Market Trend Research
|The Dow chart shows the roaring twenties (A-B), the 1929 peak (B), the crash of
1929 (B-C), the sucker rally of 1930 (C-D), and the prolonged stock market
collapse that continued until 1932 (D-E).
The Dow lost 89% of its value from 1929 through 1932. The NASDAQ fell 78%
during the correlated period, (B-E).
Financial collapse, hunger and severe unemployment were hallmarks of the Great
Depression which ended after World War II.
A partial Dow recovery, (E-F) ended in 1937 (F).
The Dow collapsed again between points F and G.
The most troubling attribute of the chart is minuscule progress that the Dow made
during the three and one half years between points G and H.
7/31/1990 7/31/1995 7/31/2000 7/31/2005 7/31/2010 7/31/2015
1/31/1920 1/31/1925 1/31/1930 1/31/1935 1/31/1940 1/31/1945
|Great Depression Stock Chart
There is a disturbing correlation between the NASDAQ Composite
index since 1989 and the DJIA during 1920-1943. Each period
experiences a boom, bust and a partial recovery followed by another
bust of surprisingly similar magnitude, slope and duration.
The graph below superimposes 23 years of the NASDAQ (1989-2011) over the
Dow (1920-1943). The charts of each index have been aligned to clarify the
similarities between the Dow and the NASDAQ during those two periods.
The NASDAQ chart reflects the Tech Boom (A-B) as the NASDAQ soared to its
peak (B) in 2000. The NASDAQ crashed in 2000 (B-C) and then staged a
sucker rally (C-D). The Tech Wreck continued until its bottom in 2002 (E).
The NASDAQ made a partial but significant recovery (E-F) from the 2002
bottom. The NASDAQ then staged a second collapse (F-G), to make the March,
2009 low at (G). A significant rally occurred after the bottom marked by G.
How is the Dow Similar to the NASDAQ?
The modern day Dow (DJIA) typically contains large companies in old, established
industries. The NASDAQ includes far younger companies from much newer
industries. But the above chart doesn't compare the present day DJIA with present
day NASDAQ. It compares the present day NASDAQ with the Dow of the 1920's,
30's and 40's.
Some of the components of the Dow in
1929 were Radio Corporation,
Paramount-Publix, Nash Motors, Mack
Trucks, General Motors and
Radio Corporation eventually
combined with other companies to
form RCA. Radio first became popular
in the 1920's. Paramount-Publix was
the forerunner of Paramount Pictures.
The movie industry was in its infancy in
|The Model T automobile was the first automobile priced within the range of the
general public. It was built between 1908 and 1928.
International Harvester was in the farm machinery manufacturing business. The first
mass produced tractor was introduced just a few years before 1920. Farming with
horses and mules was common through the 40's. I personally know a woman who
drove horse drawn farming implements during the 1930's.
The DJIA of 1929 was very different from the Dow of the present. In the 20's, it
included many high growth sectors and new industries. The components of the Dow
of the great depression had a lot in common with the present day NASDAQ!
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