Expect a 1929-style Disaster? Sell These Stocks


SellIf you thought the 6% pullback in the market was stressful,  just wait to see what’s in store over the next month or so.

By now you’ve probably seen that “scary” market chart that compares today’s market to that of 1929. The chart, produced by Tom McClellan of the McClellan Market Report, shows market movement from July 2012 to today, overlayed on a chart of the market for the months before October 1929. The eerie similarities seem to predict a 1929 style crash to occur in March or April.

In looking at the picture, it would be hard to argue with that conclusion. The two parallels are uncanny and include — you guessed it — a pullback in the market similar to what we just witnessed followed by a brief spike higher.

Then it’s down she goes and down she goes hard!

I’m reluctant to take this chart too seriously, but considering the parallels continued after I first saw it in November, it is a bit spooky.

Rationally speaking there is nothing about today that is remotely similar to 1929. We have more transparency, liquidity, and regulations in place to protect against a crash similar to what transpired then.


scary chart

But, you can’t argue with the chart.

Or can you?

I can make up a chart to look pretty much like anything I want it to look like. To draw conclusions from such fanciful artwork would be foolhardy.

Even understanding the nonsensical nature of comparing today to 1929, I can’t help to be a bit concerned.

I won’t go nuts suggesting everyone pull out of all stock positions and put the cash in mattresses, but I will say that it is always a good idea to shed your portfolio of stocks that are overvalued.

On the following pages are 3 stocks I would jettison immediately before we are hit by a 1929-style crash.

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  1. Richard E. Planck says:

    Interesting. I would, however, like to see a time-scale for the 1929 data.
    If you want to try something that’s might be really scary, use a simple linear regression technique to fit a second-order polynomial to a log-transform of the S&P 500 using data going back to the early part of the last century. [Fit ln, not log; ‘log’ is an anachronistic label (but it’s still the standard phraseology).] This/my engineering model of the market worked quite well for me. It correctly predicted the ‘Crash of 87′. I came out smelling like a rose; retired at age 45. More recently, it said ‘get out completely’. Called my broker in Boston, sold everything, closed my account. 7000% profit ain’t too shabby (no, that’s not a math error or a typo).

  2. george how says:

    If another top too big to fail banking institution collapsed like the Lehman Bros case, Idon’t see the stock market collapsed like in 1929 as your charts seem to indicate, but several sharp corrections along the way will probably happen and recovered fast enough within 2 to 3 weeks at the worst case. A 1929 situation can happen when a major war breaks out in the middle-east or in the far east drawing in the world’s powers.


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