The First Rally–Phony?

And the past and the future?
Nothing but an only child with two different masks

–Billy Collins

Were I a hundred today, I could reach into my memory bag to recall that first violent rally in May, 1930. The crash the year before had been followed by a giant advance from November into April and the top song on the hit parade was, Happy Times are Here Again. Then came a swoon that recalled the October crash. And then this sharp, unrelenting few days of upness that said to investors, “Don’t worry, it’s gonna be OK”

Since I’m only seventy-five, I have to rely on Frederick Lewis Allen’s account of the period in his book, Since Yesterday. That first rally was one of eleven such events that happened between April that year and May, two years later. Each one of them convinced investors that they were right to hold on to their stocks. But each one made a lower high, and was followed by new lows. At the end of those two awful years, the Dow Jones Industrial Average had lost 89%. There are technical reasons for this kind of action in bear markets, but it should be enough to understand that the effect is to devastate an investor’s wealth.

I think we may be about mid-way through a counter trend rally. Already, the market is more overbought than it was at the December 31 top. Here’s how I think this thing might play out, projected in the 120 minute chart of the Dow Jones Industrials:

120 min Dow

Meanwhile, Wall Street analysts are more uniformly bullish than ever, Realtors in my village are declaiming the resumption of a housing boom–there is a good bit of activity now, and no one seems to be making the connection between now and 2007. If we make new highs, my analysis will be wrong, but it won’t alter the fact that we are in the end days of the Grand Supercycle Bull market that began in 1722. The point of this exercise is to remind myself not to get caught up in the false enthusiasm of the moment.



No one should consider any part of this presentation as a recommendation to buy or sell any securities whatsoever.

This entry was posted in On Markets. Bookmark the permalink.