History Shows We Can Rally and Rebound

Although the longer-term outlook for share prices remains bleak, it is worth bearing in mind that markets rarely move in a straight line.

Even during the Great Depression, when the Dow Jones Industrials Average lost nearly nine-tenths of its value over the course of three years, there were numerous upside corrections during the period.

In fact, the following chart, courtesy of AlphaTrends, details eight double-digit percentage-point rallies that took place from 1929 to 1932.

click to enlarge

As someone who has been around markets for a while (with plenty of scars to show for it), it is hard for me to look at the level of extreme pessimism and the number of indicators flashing "oversold" in today's equity markets and not think prices are probably due for one of these periodic, hope-breeding rebounds.

That doesn't mean I've turned bullish, of course. Just realistic.

Comments

[Smarty_Pants:]

Agreed. Rallies would be excellent opportunities to establish short positions in the current downtrend.

2008 Oct 09 04:18 PM

[debtacid:]

Just one question. What is the new business model for this rebound?

2008 Oct 09 04:27 PM

[a believer:]

1) Is this like the crash of the 1930's? Yes, it is shaping up to be very similar. There was a 90% drop in '29-'32. Then there is a high probability that we have a long way to go yet - something like Dow 14,000 to 1,400.

2) When I look at the chart I do not see many trade-worthy rallies.

The message: stay in cash.

2008 Oct 09 07:51 PM