Tuesday, October 14, 2008

Dow Jones Industrial Average Rally Of 1939

Yesterday's rally required some digging to come up a comparable action for the Dow 30. The chart below is from 1939. The rally then was not a 1000 points, but on a percentage basis probably felt the same. On September 1, 1939 the market had a low of 127.50 with a close of 135.30. The next trading day, September 5, 1939, had a daily high of 150.10 and a close at 148.10. The percentage move from close to close was around 9.4%. The range from low on 9/1/39 to the high the next trading day was 22.6 points or 17.7%.

Dow Jones Industrial Average 1939(click to enlarge)

There are some significant differences in the rally in 1939 and what was experienced yesterday. Most importantly the rally in 1939 was not a "V" bottom. The low for the year was made earlier and this rally occurred after some attempts to test this low. The price action yesterday might have felt like a low, and can make last Friday feel like the low, but there will be a test. As Art Cashin says, it's the second mouse that gets the cheese. The buyers who bought attempting to buy the bottom on Friday, most likely had tried to do the same earlier the past few weeks. They might be right for the short term, but major commitments of capital will be made as we test the low from last Friday, if it proves to be a bottom. Picking bottoms is a messy way to make a living!

This chart below is a larger view of prices in the late 1930's, followed by a current chart.

Dow Jones Industrial Average 1930's(click to enlarge)

This next chart shows prices in May of 1940. As fun as the upward moves feel, the down moves impart more emotion and feelings that last. The fear of the next down move will return.

Dow Jones Industrial Average 1940(click to enlarge)

Dow Jones Industrial Average Current(click to enlarge)

Dow Jones Industrial Average Weekly (click to enlarge)

1 comment:

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