Dow Repeats Great Depression Pattern: Charts

The Dow Jones Industrial Average is repeating a pattern that appeared just before markets fell during the Great Depression, Daryl Guppy, CEO at Guppytraders.com, told CNBC Monday.

“Those who don’t remember history are doomed to repeat it…there was a head and shoulders pattern that developed before the Depression in 1929, then with the recovery in 1930 we had another head and shoulders pattern that preceded a fall in the market, and in the current Dow situation we see an exact repeat of that environment,” Guppy said.

The Dow retreated 457.33 points, or 4.5 percent last week, to close at 9,686 Friday. Guppy said a Dow fall below 9,800 confirmed the head and shoulders pattern.

The Shanghai Composite is seeing a very rapid collapse, falling below 2,500, which suggests the major fall in the Dow, he added.

In the European markets, Guppy says Frankfurt's Dax is witnessing a different pattern to London's FTSE.

Guppy uses the broad trading band as measurement- giving the Dax a downsize target of 1,500. The same head and shoulders pattern seen in the Dow can also being seen in the FTSE, he added.

COMMENTS

PortperryJerry | Jul 5, 2010 05:49 AM ET
"Head and shoulders knees and toes".

The coincidental shapes formed by trend lines is a reflection of the market reacting to information and events. It is not a self fulfilling prophecy of doom.

With continued volatility within trading ranges becoming common place, won't a successive series of "head and shoulders" simply become the new norm going forward?

Gwhitebeard | Jul 5, 2010 06:27 AM ET
Well, ONE good jobs report and the "Depression" will be over! Right now weath is just stockpiled in alternate asset classes waiting to come back in, during the 1930's wealth was destroyed and there was no "Sidelines". It is too easy in the "New Normal" to move assets. Charts of Y2K reflect a "Trading Heartbeat" rather than forwards looking investment. Can't compare the Queen Mary to A 747 just because both get you across an ocean.

tmacktrading | Jul 5, 2010 08:13 AM ET
He is a day late and a dollar short - if you want to see a chart posted showing fractal patters of today compared to 1929-1932 look at the chart I posted on June 15th here>

tmacktrading.blogspot.com


Tim Mack

PS. Human behavior in reaction to the emotions of hope, fear and greed has been repeating as long as man has been on earth. These reactions are directly reflected in the market action as repeating patterns the difference being that time and price have less influence.

Gwhitebeard | Jul 5, 2010 09:14 AM ET
Much more reasonable to compare this pullback with the charts from 1981 - 1983. You will see a 20% pullback which we have not even reached yet. Seeing articles like this means it is near capitulation and another great buying opportunity.

fefo1867 | Jul 5, 2010 09:49 AM ET
Check Daryl Guppy 's blog. Last week he was calling a super bull rally on the Shanghai index now he 's telling us we're headed to the great depression again.
This guy is a complete clown. The problem with the Media is that they never check these guys on what they previously said. That's why you see the Roubinis and co presented as the great forecasters while they only announce the same crap end of the world stuff all the time waiting for something to happen.
Would be great to see CNBC and the media in general to do a real journalist job for once !

DoctorDoom | Jul 5, 2010 10:21 AM ET
History will repeat itself because people never learn from it.
Same upswing in market happened in 1930 and collapsed again in 1932! The pattern is heading in the same direction because nothing has changed to correct the reasons why it happened! Unsustainable sovereign & consumer debt have not be addressed. Jobless numbers have not been addressed! Taking people off the unemployment rolls, by letting their benefits expire, is not addressing the problem either!
Homelessness must no be allowed to continue. People moving in with relatives and friends is not acceptable in a country where the US aristocracy has multiple homes all over the world! Corporate profits must be reduced by taking away tax loopholes that allow them to get away with paying their fair share. 90% of the wealth of a country should not be in the hands of 1% of the population! When these problems are addressed recovery will indeed arrive!
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fefo1867 | Jul 5, 2010 10:28 AM ET
DoctorDoom you picked a wrong pseudo ... you should change for DoctorMao or DoctorLenine

pseudo-intellectual | Jul 5, 2010 10:45 AM ET
gwhitebeard, we had a "good" jobs report in May, at least from Obama's perspective- 400,000 jobs added,nearly all of them temporary government jobs, and all the polly annas celebrated... but it was a short-lived celebration.

There is no "recovery" until the economy can sustain itself without massive and wasteful government spending which merely puts off the day of reckoning.
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Docacct | Jul 5, 2010 11:17 AM ET
Doctordoom, when has wealth redistribution ever worked anywhere? Were you in Russian around 1912?
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luangtom | Jul 5, 2010 11:40 AM ET
Reading these self-professed zealots is like reading the Bible analysis by their so-called experts. They can twist and manipulate events to substantiate their own agendas. Not long ago this expert told us were were on the upswing and now he says we are crashing. Did he lose something and forget what he already said? Play it smart, people, use your own judgment and follow your own instincts. If these people were as good as they profess, why do they still seek air-time to prophesy?

ital | Jul 5, 2010 11:45 AM ET
Only an idiot would assume anything from this. Without the events and reactions on policy being the same as 1930,,, it's useless info.

It's insulting that CNBC thinks everyone out here in TV land is STUPID. And, it's scary that the moron in the video is handing people's money.

The collective intelligence in the USA professional and science world is declining. I bet if we flew to the moon these days we'd freaking crash or fly right past it. Then we'd find out Goldman Sach shorted NASA, Taxes would go up, and government would expand.

fraizr | Jul 5, 2010 12:25 PM ET
“The depression has ended.” (Dr. Julius Klein, Assistant Secretary of Commerce.
- June 9, 1931

Ignore history at your own peril!

fraizr | Jul 5, 2010 12:32 PM ET
ital | Jul 5, 2010 11:45 AM ET

Only an idiot would assume anything from this. Without the events and reactions on policy being the same as 1930

Ok lets see ital...ring any bells for you?

BROKERS BELIEVE BOTTOM IS REACHED; Others Say a Sharp. Recovery Is in Order.
-October 30, 1929 (Glad they covered both sides of the story!)

“FISHER SAYS PRICES OF STOCKS ARE LOW; Quotations Have Not Caught Up With Real Values as Yet, He Declares. SEES NO CAUSE FOR SLUMP”
-October 22, 1929

“Time to Buy Stocks” John J. Raskob, one of the country’s leading industrial and political leaders
-October 30, 1929

Headline “INSURANCE HEADS URGE TO BUY STOCKS”
-October 30, 1929

ROCKEFELLER BUYS, ALLAYING ANXIETY; Elder Financier Says Business Status Does Not Warrant the Destruction of Values. October 31, 1929

fraizr | Jul 5, 2010 12:33 PM ET
BIG FIRM SUSPENDED; Prince & Whitely, 51-Year-Old House, Is Unable to Meet Its Obligations
In the midst of the severest market reaction in two months, the New York Stock Exchange announced yesterday that the 51-year-old firm of Prince Whitely, one of the largest and best known houses in Wall Street, had been suspended on its own admission that it was unable to meet its obligations.
-October 10, 1930

REDISCOUNT RATE CUT TO 1 % RECORD LOW; Federal Reserve Bank Here Takes Drastic Action
-May 8, 1931

BUSINESS CYCLE’ SEEN AT NEW PHASE; Bankers Hold Downward Trend in Markets Indicates Recovery Is Near. DENY ANALOGY TO 1920-21 Economists Point to Superior Credit Conditions Now, Holding Easy Money Points to Revival.
-July 6, 1930

MORTGAGE MONEY SCARCE
-February 23, 1930

The Quieting-Down of Wall Street–Aspects of Government’s Relief Projects.
-November 25, 1929

fraizr | Jul 5, 2010 12:34 PM ET
WORLD COOPERATION: A NEW STEP AHEAD; The Hoover Plan Has Focused Attention on the Problem of Economic Unity THE NEW WORLD COOPERATION
-July 12, 1931

fraizr | Jul 5, 2010 12:46 PM ET
Ital...does this one sound familiar?

$2,000,000,000 POOL FOR BANK AID URGED; October 26, 1931

JonnyChepe | Jul 5, 2010 01:03 PM ET
What did everyone expect? He got voted in as president. Elections have consequences. It's only going to get worse....a lot worse. Enjoy the good times while they are still here. Next year at this time this country is going to be so fu@ked up most Americans won't recognize it....at least most legal Americans. So on to amnesty, cap and trade and more union bailouts. Don't forget to enjoy your healthcare and all of those green jobs....and what about the oil gusher in the gulf? Sequester the press and control the internet, suppress free speech...after all we are just a bunch of "useful idiots".

fefo1867 | Jul 5, 2010 01:23 PM ET
Fraizr... Do you realize you can find the exact same comments in 1982 at the beginning of one of the biggest bull in History. My concern is why be so aggressive in trying to convince other people to get out of the market ? Just get out yourself and shut up !

staneylyle | Jul 5, 2010 01:26 PM ET
These comments are very interesting--to see the various opinions. However one major factor is not, possible rarely, mentioned: that of impending great changes in our tax code.
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Ven_ | Jul 5, 2010 01:32 PM ET
The point is that it doesn't matter what policy decisions are made. The Austrian economists are correct: the fault is in the creation of the credit bubble itself.

Charts don't lie; only people do.

Events, policy, etc. can affect a market for a day, or a couple of days, but they won't alter the larger trends. If you look at charts that compare 1928-1930 with charts of 2003-2010, you'll see small day to day differences, but the larger trends are all the same.

Once the credit bubble was created in the 1980s, NOTHING could stop it from eventually deflating. It was only a question of then or now. Unfortunately, your politicians sold all of you to the bankers 25 years ago, and decided to build bubble on top of bubble.

The result will be an even greater collapse than any of you can possibly imagine.

And yet, the world will go on. As it did after the fall of Rome.
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Ven_ | Jul 5, 2010 01:44 PM ET
Futhermore, why do some of you think the policy decisions are any different today than then?

Oct. 1929 bankers pool together money and bailout brokerages on the floor of the NYSE.

Sept. 2008 U.S. announces plans for $1 trillion bailout of financial firms, etc.

1930 Federal Reserve announces record low fed funds rate of 2%

2009 Federal Reserve announces record low fed funds target rate 0-0.25%

1930 onward - Federal Reserve begins purchases of U.S. government securities (quantitative easing)

2009 onward - Federal Reserve begins purchases of U.S. government securities

---

The points are two-fold:

1. Human psychology doesn't change; investor and central bank responses will be the same as the 1930s

2. Response doesn't matter anyway; the fault is in the creation of the bubble itself, not in failed medicine. If you get Ebola, you don't die because there is no cure from it, you die because you contracted Ebola in the first place.
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fraizr | Jul 5, 2010 01:53 PM ET
Not meaning to be agressive. Rather, Ital argued that the conditions and policy responses are not similar now to the 1930s. Just thought I would point out some headlines we have seen in the last 18 months or so.

Unlike in the 80s, we have a major credit contraction and the housing market is no longer a ready source or liquidity for homeowners.

In the 80s the government did not need to nationalize Gm/Chrysler, did not need to nationalize the Housing Market (Fannie, Freddie, and the FHA), did not need to nationalize the student loan industry did not need to nationalize the auto loan industry...and the FDIC had enough $$$ to take over failing financial institutions. They are in the red and we are just entering the second half of the year.

Dodgers1 | Jul 5, 2010 01:56 PM ET
tmacktrading said, "Human behavior in reaction to the emotions of hope, fear and greed has been repeating as long as man has been on earth. These reactions are directly reflected in the market action as repeating patterns the difference being that time and price have less influence".

-------------------------------------------------

I absolutely agree. I would add that the media is also a factor in creating fear in the market.
When the market goes down, for any reason, the media declares that the sky is falling. Humans make the same mistakes, based solely on emotion, over and over. To put it another way, there is nothing new under the sun.

fraizr | Jul 5, 2010 02:20 PM ET
Dodgers

"I absolutely agree. I would add that the media is also a factor in creating fear in the market."

Over the last year or more, the media has been creating irrational exuberance...green shoots, V-shaped recovery, less bad is good, goldilocks is back! Drawing people into the market.

Now that less good is becoming bad, why is everyone blaming CNBC...they did not blame them when all they reported was unrealistically positive.
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ZorroNova | Jul 5, 2010 02:28 PM ET
Doctor Doom, what's obvious is you yourself have not learned from history. Your "redistribution of wealth" argument has been tried, and has miserably failed. We don't want your tired, crusty old social engineering philosophy this time around. How about shrinking our out-of-control tax and spend government, and have them simply leave us all alone.
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Davidduke | Jul 5, 2010 03:43 PM ET
This Guppy fellow is a funny character, he's a tea leaves reader, crystal baller and a charlatan.

Yes the man made recession is still in full swing, but let's get serious, 90% of the labor force is working , 90% of home owners still own their homes.

WE are not seeing the gold getting out of control as a matter of facts, as soon it hits $1250 -$1260, it rolls back to $1200 suggesting a ceiling.

Guppy should take a couple of days off to relax, he appears to be too stressed.

tazdelaney | Jul 5, 2010 04:06 PM ET
and last week, obama said that america has 8 million unemployed. what? such blatant lying is as bad as bush. there are just under 10% gettng unemployment checks and the same percentage no longer getting an unemployment check. that is 20% of a would-be work force of 160 million. anyone can do that math as 32 milion unemployed americans; not to mention the underemployed millions who used to have decent paying jobs and now go further in debt daily on walmart-slave-wages. and in this decade, it is a rare month when the 147,000 new monthly young would-be entries to the workforce has even been met. and for the entire decade, the numbers of those in poverty has soared.

so what we're looking at is at least 30 million american households totalling 100 million or more persons struggling, losing their homes, on food stamps, growing hopeless AND IN NEED OF STARTING TO BUILD GUILOTINES!
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tazdelaney | Jul 5, 2010 04:08 PM ET
the clear intent of the domino of bubbles designed to burst and finally leave this gaping hole in the world; knowing it could ganin corporate-communist welfare-for-the-wealthy from bush and obamabush... was to do as has been done in every past recession/depression in US history – shrink the numbers of those 'elite' who really hold the reins and increase the numbers of the 'underclass.'

in april of 2009, the UN estimated that IF IT DIDN'T WORSEN(which it decidedly has), some 7 million of the world's poorest people would die as a result of the golbal economic collapse. they, like all the other devastated people, never benefit from the corporatist schemes; just die and bear the burden of the parasite gobbleists. 7 million is a number at holocaust level; yet none will ever be charged with this massive and growing crime against humanity. and the culprits step over the dying to their limo for dinner in the guarded compound's club with the senator they own.
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stary_kozel | Jul 5, 2010 04:23 PM ET
On the one hand:
The Head and shoulders discussed above could result in an additional drop of 1400 points or so down to somewhere around 8400. But - if it goes down there, it may continue and we would see 7000 area with some very serious test and very likely collapse.

One the other hand:
I do not think the damage is imminent and we could be saved by this late fall's elections. The slogan "Hope" so misused in the last elections could become meaningful.

Jobs is something else. Technical jobs cannot be brought back if there is dearth of marketable skills. Our education system with the "noble" goal to give everybody 12 years of high school is the culprit. America should look to Europe (and everywhere else) to see what works. Kids in 8th or 9th grade should be making decision if they are to continue to pursue ultimate college degree or if they should instead take to trade schooling. And I do not mean fixing cars; I mean REAL 2 or 4 years of sophisticated technical education, be it model or tool making, learning to write code, or simply making cheese.

I am out of text limit. Bye.

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PussyGalore | Jul 5, 2010 06:00 PM ET
I absolutely think these prohesies of decline will pan out..but not here...everyone is so bearish this must be a short-term trading bottom. When you see a rally and the cnbc talking heads windsocks start marvelling at " how resilient this market is "...SELL SELL SELL...!!!!!!!!!

Goldenchild78741 | Jul 5, 2010 06:01 PM ET
I am really curious about something.

If everyone is so sure that the markets are crashing, why don't they just short it and make a bundle?

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VirginiaJim | Jul 5, 2010 06:10 PM ET
Lots of silly comments. People love to bluster about things of which they don't know anything. The H&S pattern may be the most reliable of all technical patterns. Documented by Edwards and Magee in "Technical Analysis of Stock Trends" (a landmark book written in the ཤs and currently taught as a mainstay in ALL major MBA-Finance programs), the H&S pattern has a very high probability (approaching 90%) of reaching its price objective once confirmed. A drop of 3% below about SPX 1040 and you've got confirmation. Not there yet, but close. VJ

stary_kozel | Jul 5, 2010 06:24 PM ET
Psychology keeps people from going short. There are bearish ETFs to use even in personal IRAs. I do swing trading. In my personal situation, the problem is that the market character/dynamics changed lately and it is very difficult to depend on technical analysis (my strength). Value investing does not work either.

The problem is that people are not sure what the White House will come-up with tomorrow or day after and also the new automated trading programs make too much statistical "noise".

Last year I made 179% in total gains using both bullish and bearish Power Shares (Direxion did not work well for me because these ETFs were repeatedly triggering my Trailing Stop Loss limits).

This year I am unable to "do it right" and am getting gun-shy because my style just does not work. I do not believe that our economy is doomed and that is my major problem right now.

The above story made me to look some 25 years of data and it surely does not look good. As of today I am leaning bearish at least until this fall's elections. And if Obama promises $250 of "free money", we are screwed.

cheesebag | Jul 5, 2010 06:25 PM ET
To those that dismiss technical trading as random lines on the chart. They are more than random lines on a chart. They reflect the social behavior of markets and support the Elliot Wave Theory and Fibonaci theory also. Don't be so naive to just dismiss this. It doesn't mean it is written in stone however, but the market will do what it wants to do. It is continuing the journey down, from before there was intervention also known as TARP. The market never fully wrung it out and will attempt to do so again. To all you perma bulls out there, the market will go back up. But not before it cleanses itself first.

cheesebag | Jul 5, 2010 07:06 PM ET
Goldenchild78741 Your typical retail investor isn't savvy enough or rich enough to go short. The downside potential is unlimited. You can do it with options though as well as the short ETF's where your downside exposure is limited. The drawback with the ETF's is someone else is calling the shots and they get a commission whether you win or lose.
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Goldenchild78741 | Jul 5, 2010 07:09 PM ET
@Stary-
Oh I know there are ETF's. I have ALOT of SDS currently in my IRA. I am targeting about 350 on the S&P at the end of 2014.

That should be around 200% ROI in 5 years. I can live with it.

FullTimer | Jul 5, 2010 08:12 PM ET
As much as the doom-and-gloomers want it, there have only been two depressions in the history of the US. Yes two.

And as long as the Fed doesn't tighten money like they did in the 30's, there is zero chance of having another one now. Sorry boys.

http://notesonmoney.wordpress.com/about/

thrashertm | Jul 5, 2010 11:49 PM ET
This is no surprise to those of us that pay attention to real economists like Peter Schiff, who have been predicting that there would be no recovery until the government cuts spending and allows bubbles/malinvestments to liquidate. Instead we've had nothing but Keynesianism and crony capitalism, bailing out the irresponsible and subsidizing failure. Try telling that to Steve Liesman; it will make his bobble head explode!

We help Americans move to Asia for jobs and prosperity. Learn more at http://www.pathtoasia.com/services/.

tylercash | Jul 6, 2010 12:32 AM ET
I certainly am impressed by what some of you young folks write, no doubt the generations are smarter than those before them. But when dealing with a complex issue like the stock market, especially during the recent past, present and the future times to come. Your best reference to what's happening is to use your eyes and your brain. It's not rocket science, although, many would like you to think so.

Put down your charts and books and take a walk outside. Go places, buy things, and take note of the entire experience. The think and think some more. You will come up with right answer every time.

This country is in a depression that grows worse by the day. Some folks know that and some folks don't. That's just how it goes. We have a huge economy, one that wears many masks.

To those who don't believe we are, by this time next year the chances are good you'll know one way or the other.

FLM | Jul 6, 2010 12:58 AM ET
Charts help dictate the future by seeing past events. History usually repeats itself.

I am first and foremost a technician and I also look at sentiment data. This is how I come about to my conclusions. The markets are moved by the big boys and they know more than the little guys and they always leave evidence. ;)

I do understand what you're saying tyler and this is true as well. However the markets don't work like that. Ever notice when everybody is thinking that markets will go to the moon that the contrary usually happens? Also, last year everyone thought that the end was near and we had a huge run. Don't get me wrong. It is bad. The rich are getting richer and the poor are getting poorer. When all is said and done there will be little no NO middle class.

www.aofinance.blogspot.com/2010/07/blog-post.html
I have some good stuff on my page. I have some old data that I will post soon.

Gnight all

Davidduke | Jul 6, 2010 03:08 AM ET
FLM,
Charts are like a computer, garbage in, garbage out.Charts do not compensate for event political or otherwise, so far world's economies were taken care off by printing more money and how the gold reacts to this, buy dropping $44 in a single day.

There will be ups and downs but there is no depression as the bulk of the country is working, and companies are still holding.

Just last week , wall street was bragging about their rank as job providers for the last 2 month, and apparently they hired people in the thousands, while the rest of the country lacks in low level jobs hiring.

Two month ago, everybody was hyping the recovery and everybody was bullish regardless the indications that show otherwise.

2 month later, all of them changed direction and started beating the drums of gloom.

Either they are all idiots and simply follow the leader and they got tricked into buying stocks at their highs, or they are idiots because they have no clue and let the small guy screw them.

This time around the small is the one who made the money and the big funds are left holding the empty bag.