There has been much talk of late, in the press, on television and by the Governor of the Bank of England no less, to the effect that the current World economic crisis could be as potentially as bad as, if not worse than, the Great Depression of the 1930’s.
Well, if that is true and if the stock markets follow a 1930’s pattern then we are all in for a torrid time -
Here is the DJIA from the 1929 crash thru’ to 1933 (weekly prices) -
(Click on chart to enlarge)
But we have to observe that the markets have, over the last few months (of dire and worsening predictions), held up remarkably well and, so far at least, show little sign of the calamity of a 1930’s style crash and attrition period.
Here is the Current DJIA from 2007 to date -
For the present Dow to mirror the 1930’s Dow it would first have to fall below the 7000 level and then drift down over the succeeding two to three years towards the 1470 area (-89% from the 13362 October 2007 high). That hardly looks likely! Even a collapse to the 7000 level, although not impossible to consider, does not look very likely.
Turning to the FTSE 100, the effect of a 1930’s style collapse and attrition period would involve first a crash to the 3475 level (which will happen if the 4782 support level is broken!) and then a drift down towards the 750 area! -
Again, that hardly looks likely given the degree of support that the 5000 level has been providing for the FTSE let alone the 4782 level which would have to be pierced by a strong down move.
In fact, what seems to be happening currently is that the FTSE 100 is preparing for a sizeable jump. It has been receiving good support and is now in process of breaking out above the 5400 level (which we reported previously it was likely to reach). And now we find that it may be able to gain ground above the higher level of 5650 that we also highlighted earlier; there is now good prospect that the FTSE could jump to the 5770 level before falling back again.
The FTSE 100 (weekly prices) -
But, just so that we don’t entirely lose our ‘jeremiah’ reputation – a rise to 5600 or even 5770 would not preclude the possibility of a subsequent collapse. And any such collapse would have an even bigger impact coming, as it would, from an higher level and perhaps when expectation of it had lessened – there is nothing that old Damocles likes to do more than to swing that great sword of his when we mere mortals least expect it!
Alan Saunders Chief Analyst, ShareHunter
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