Sort of got my appetite whetted by discussing the MACD-H aspects of the current S&P in my last post, so I wanted to see what the Dow looked like back during the Depression (the S&P hadn't been invented yet). Here's the chart - let's run through it.
Dow Monthly Chart 1926-1938
First off - look at the top in September 1929 - notice that the prices were higher yet the MACD-H was lower than earlier that year. Don't say that they didn't have warning (imagine if they had FAZ and SKF back then!).
The MACD-H immediately got pretty deep, showing that there was awesome bearish momentum to the downside. Notice that although that momemtum peaked at the end of 1930, the bears were still in control and prices continued dropping for a full 18 months afterward. By the time the bottom was actually reached, the MACD-H had again climbed to 0. The bears strength was played out and the bulls took over. The next low price extreme, in March 1933, with a much higher MACD-H confirmed that the bottom has been reached and a major multi-year rally began. The bears never again took control until the 1937 recession.
But compare that to where we are today and you can see that this bear run still has quite a ways to go and anybody who thinks or hopes that there will be a quick turn-around is just engaging in wishful thinking. Fortunately we know how to make money during bear markets.
I also want to show what is perhaps the most memorable chart that I've seen in the past several months. This one was posted back in November at the very informative blog My Budget360 http://www.mybudget360.com.
Dow Bear Market Rallies - 1929 - 1932
What this chart shows is that during the long bear market that defined the Great Depression there were several strong and important rallies. At each one many people thought that the corner had been turned and jumped back in with optimism (although the optimism declined over time) only to have their hearts and their bank accounts broken when the great bear turned south again.
If they had been looking at their charts and their MACD-H indicators, they would have seen that each bear market rally was a cruel pipe dream destined to fail - the monthly MACD-H never got close to 0 in any of them until July 1932.
We can expect in the coming months some sweet bear market rallies of our own. If we're nimble we'll switch to UYG/FAS (or whatever is currently working on the long side when it happens) and make good $$$ that way.
But keep an eye on the indicators such as the MACD-H which will tell you if any bear market rally is the real deal or not. Until it gets a LOT closer to 0, chances are most likely that it won't be. Forewarned is fore-armed.