Possible 1929 Crash Similarity Developing

Bestonlinetrades has identified what may be a similar pattern structure between the 1929 top and the current sp500 top that is developing.  Both market periods developed an ascending broadening wedge that has the potential to be a very bearish resolution type of pattern.

In the case of the 1929 top it led to a 47% decline from the the peak to the climax low.  If we repeat the same magnitude crash as that which occurred in the 1929 period, we could be seeing a sp500 that is in the 640 range within a few weeks or months time. The time frame is the most difficult aspect to predict.  And clearly trading a crash is no easy task either.

If we are correct, then we should start to see a rising wedge formation develop or at the least a consolidation that tempers the current volatility.  But then the market should once again show a sign of weakness and lead the way to a break of the bottom portion of the ascending broadening wedge formation.

We believe that the environment is ripe for a crash because of the current ‘no bid’ market environment developing where we have seen a low volume rally push higher into end of April and then extremely heavy volume push lower right off of those highs.  In fact we already have confirmation ( in terms of volume) from the recent 1000 point stock market plunge that the lows of the ascending broadening wedge will be broken.

sp500sp1929

The market environment we are now faced with is one of extremes and is the exact opposite of what we got used to experiencing from the March 2009 lows.  The entire reaction rally from the March 2009 lows has the flavor of an ‘automatic rally’ which occurred from the extreme oversold condition of the 2008 panic. 

I have seen downside resolutions from automatic rallies in individual stocks and I can tell you that they are not a pretty sight.  They can show gaps and mini crashes.  So this is consistent not only with the ascending broadening wedges above but also the longer term Elliott wave patterns.

So to conclude we see the real possibility of a crash so relentless and so severe it will test our financial system like it never has before.

Posted in Index Trading, Market Timing, SP500
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