Never say... It will never happen again.
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DJIA vs. NASDAQ: Updated Monthly
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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
(1920-1954) 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 1/17/2018
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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 President SignalTrend Inc.
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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.
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7/1990 7/1995 7/2000 7/2005 7/2010 7/2015 7/2020
1/1920 1/1925 1/1930 1/1935 1/1940 1/1945 1/1950
A
C
D
B
E
F
G
H
710
1430
2140
2860
3570
4290
5000
5710
Great Depression Stock Chart
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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 27 years of the NASDAQ (1989-2015) 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 International
Harvester.
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 1920's.
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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