Recently, an opinion article by Mark Hulbert has been making its round on social media, illustrating the striking resemblance of the current Dow Jones Industrial Average chart to the same DJIA chart just before the wall street crash 1929.

This has gotten many people wary if we could see a similar wall street plunge in the weeks ahead.

Some panicky investors could even have started to liquidate some of their holdings, in anticipation of the seemingly inevitable plunge by the market.

As you can see from the chart below, the DJIA chart between July 2012 to February 2014 closely reflect the similar up-moves and down-moves of the same DJIA chart during the period just before the 1929 crash.

And should this similarity manifest itself going forward, we could potentially witness a big market crash starting as soon as over the next few days!

The projection suggest that the DJIA could plunge from its current 16,000 region back to the 12,000 levels (a whooping 25%) within a few short weeks.

Now before the jittery investors get too panicky and the shorties get too hyped up about this chart, let’s calm down and adopt a more objective stance to this whole wall street crash 1929 scenario.

wall street crash 1929 vs djia 2014

— DJIA 1929 Trend VS DJIA 2015 Trend —

 

Putting things in perspective

As you would have noticed by now, the similarity as illustrated by the above chart was captured over a relatively short 19-months.

The current bull market actually started way before July 2012.

As such, we could get a better idea of whether the market is really in danger if we pull the history of the chart further back.

 

DJIA Chart (2008-2014)

— Trend of Dow Jones Industrial Average Index from 2008 to 2014 —

 

As we can see very clearly, the DJIA bottomed out in early 2009 and that was the starting point of the current bull run.

Since then, the index has pull-backed significantly on numerous occasions to form key support levels.

When these key support levels are linked together (on three occasions), we can see the formation of a very clear up-trend support line (blue up-sloping line).

If you are a long term investor of the US market, the only time you should really be concerned about a potential crash of the market is when the DJIA falls back to the blue line for a test and violate it.

That is the point when market sentiments about the broad market will shift significantly from bullish to bearish.

As long as the index keeps bouncing off this blue long term up-trend line, you really shouldn’t be concerned about any catastrophic plunge like the 1929 crash.

 

So is the wall street crash 1929 going to happen?

Frankly, I have come to realise that it is futile for anyone to try to predict the future.

One of the key traits of a great trader is learning how to cut his losses short and let his profits run.

This requires the trader to react to situations as it develops itself and not predict the outcome and try to jump the gun.

If you try to adopt a predictive analysis model (eg. selling the market right now because of this chart similarity), you could potentially leave all the money on the table should the current bull market continue its rise from here.

Learning how to let your profit run is one of the hardest skill to master for any investor.

It requires you to sit tight and observe patiently for the right things to happen without getting swayed by other people’s tips and opinions.

It is this discipline that differentiates a great trader from a novice one.

So after reading this article, are you still going to try to predict when the next wall street crash 1929 is going to happen?

 

Philip Teo

Founder & CEO at Traderwave Pte Ltd
Philip Teo is an entrepreneur, speaker and trading coach who specialises in the field of Technical Analysis of the financial markets. He is currently the Founder and CEO of Traderwave Pte Ltd, a financial technology company that offers a web charting application to global traders. He has conducted many trading seminars and appeared on national television before. He is also currently an official speaker and trainer with SGX Academy. Learn more about him at his Google+ Profile, LinkedIn Profile and Facebook Profile

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