Tuesday, September 15, 2009

Sucker's Rally? (Just sharin')

AlphaNinja - The gents at TechTicker comparing the current rally to the stock market's 1930 rise. Why worry about the similarities? Because the 1930 rally was followed by a 80% drop not long after.

I personally find the DJIA and S&P500 to be fairly valued, maybe even cheap. That said, both viewpoints are worth consideration.

The early 1930 rally came after the market had fallen nearly 50% in the fall of 1929. The spring rally took the market up nearly 50% again, to a level that was only about 20% below the previous peak.

That rally, of course, was also the biggest sucker's rally in history. After the market peaked in April 1930, it crashed again, eventually ending up down 89% from the 1929 high and more than 80% from the 1930 high. The market did not reach the 1930 high again for another quarter of a century.

Our current rally came after a crash that was actually slightly more severe than the 1929 crash (53% versus 48%). It has taken the market up more than 50% from the low. Our current rally has also lasted slightly longer than the 1930 rally did.

And a chart of the comparisons between several similar periods would suggest a further drop ahead:

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