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Comparing the Nasdaq to the Depression-Era Dow   (February 28, 2006)



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It is instructive to compare the last great stock market bubble burst with the current unwinding of the great Nasdaq tech bubble. The most obvious features of the Dow Jones Industrials stock bubble displayed on the graph above, covering the years 1928-1937, are rather eerily present in the Nasdaq graph below:
  • a hockey-stick rise in the year or so preceding the crash
  • a fitful decline of nearly three years to the absolute bottom
  • followed by a "false prosperity" recovery of about four years
  • which ends in a secondary collapse of the market.

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    Yesterday's entry pointed out that the four-year "presidential cycle" predicts a stock market bottom late in 2006, and it is perhaps not entirely coincidental that a comparison of these two charts suggests the same conclusion:
    An exhaustion of the "false prosperity" "echo of the bubble" which is nearing its wealth-destroying conclusion, four years after the post-bubble bottom. As if this were not enough evidence to suggest caution, it should also be noted that bull markets usually last about 3 years. The current euphoria has run 3.5 years, and will be extremely long in tooth at 4 years come October 2006.

    While it's amusing to study Fed Chairman Bernanke''s comments, it might be more profitable to study objective charts.

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    copyright © 2006 Charles Hugh Smith. All rights reserved in all media.

    I would be honored if you linked this wEssay to your site, or printed a copy for your own use.

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