Scary chart draws parallels with 1929

|By:, SA News Editor

Making the rounds on trading desks is this chart of the DJIA (DIA) of the last 18 months superimposed on a chart of the index during the same time frame in 1928-1929. The short version: If form holds, the market is set for another epic crash.

In the more nuanced version, the chart says little except for again proving the hardwired tendency of the human brain to see patterns where none exist, and one is reminded of similar exercises over the past few years making the case for the Dow breaching its financial crisis lows.

Technical guru Tom DeMark, however, is starting to believe:  “Originally, I drew [the chart] for entertainment purposes only ... Now it’s evolved into something more serious.”

Tom McClellan: "There is no guarantee that the market has to continue following through with every step of the 1929 pattern. But between now and May 2014, there is plenty of reason for caution.”

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