1937 vs 2007 Bear Market Comparison Update (by TheInflationist)

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Our last update on 1937 vs 2007 comparison was exactly two weeks ago, 7 Feb 2010 – when markets were in the pits. Dow was 9880 at the time of writing then – and our plan 2 weeks ago was: Our strategy going forward: We look to reshort at ~ 10400 +/- 50 points. Lets hope for a swift rally. Stops at previous high 10720.

Well, here we are now at that point – markets closed at 10402 on 19.2.2010. Here are updated charts, zoomed in to try to pinpoint the top (for new readers, we have never been able to do this so please proceed with caution). We will let the charts do most of the talking:

Series 1 (blue) : 1937 Bear Market

Series 2 (pink): Current Bear Market

X-axis: number of days from peak

Y-axis: Percentage from peak

Chart 1: 1937 vs 2007 Crash Comparison Chart (Big picture)

feb2010 update:1937 vs 2007 Crash ComparisonChart 1: 1937 vs 2007 Crash Comparison Chart (a closer look)


Just to remind readers and for new readers, our first post on this (ridiculous) series comparing 1937 and 2007 (two independent points in time 70 years apart!) was in Dec 5 2009: Using Fibonacci Numbers to Predict the Market. We have been tracking it since.

Our trading plan this week:

  • + Hope for markets to rally early in the week. Looking at 1937, markets need to rally ASAP. This is the terminal part of the rally, so some good news on Monday would be good. Note that whilst 10500 is based on the same percentage retracement as 1937 at point "X" shown above, the rally could fall short of 10500. We have fired a miserly $2/point at 10400 – we will reserve our ammo for 10480 ($5/point) and 10540 ($10/point).
  • + Small McClellan Oscillator change on Friday. Whilst we bears hope the large expected move is a DOWN move, lets hope its an UP move to hit our targets set above. A 140-point rally on the Dow (1.34%) would take us to 10540, setting off our highest short.
  • + All shorts have a stop at 10700 (loss of: $600 + $1100 + $1600 = $4300) ($4300 is quite a big gamble~3.5% of our portfolio)
  • + Potential upside: target 9600 (final target will be updated in the coming weeks) – ($800 + $4400 + $9400 = $14600)
  • + We will be posting this analysis on as many blogs as possible – in hope of advice from readers who are familiar with options to provide an alternative trade plan based on the above scenario. We don't like our $4300: $14600 play. Thank YOU in advance.