In February of 2014, a widely publicized chart circulated about the similarity between a 1928-1929 stock chart and a 2012-2013 chart. According to Tom McClellan of the McClellan Market Report:
“…between now [February 11, 2014] and May 2014, there is plenty of reason for caution.”
Since February 11, 2014, the Dow Jones Industrial Average has increased +11.06%. In the period from February 11th to May 31st the index gained +4.52%. So far, the scary 1929 chart has not held up to the lofty claim of presaging a bear market or a even a –10% decline. We offered up our own interpretation regarding the chart and said the following:
“We love a declining stock market as much as the next value investor. However, implying that an -89% decline is in the works because the pattern appears similar to 1929 is ignoring the path to far more achievable downside targets.”
Our preliminary downside targets seemed reasonable at the time but were never achieved. One downside target that we thought was important was the ascending trendline from the 2009 low.
We still think that investors should watch the ascending line in the chart above, which currently sits at the 15,780 level. An additional downside target is the Dow Theory 50% Principle level of 12,286.68.