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The Crash Recovery Analysis: 1929 vs 2001 vs 2009

1 Comment June 10, 2009 – 1:05 am |   | Permalink |  Print This Post |

A snapshot on the recoveries in previous crashes, comparing The Great Depression in 1929 vs 1987 vs 2001 vs 2009. The daily charts have the 200 day moving average, used by many technical analysts as the key level of support/resistance. Many believe a launch above the 200 day MA would suggest a new significant rally (what you call it - ie bull rally or a bear market rally is irrelevant). We will continually add more declines to compare so bookmark this page if you wish to check back.
The Great Depression 1929-1933

1929 Crash: Recovery Analysis

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1. Early 1931: First break above 200 day moving average was transient. Markets pulled back in >3 months and stayed below the 200 day MA.
2. Mid-1932: In the lowest point of the great depression, the actual recovery took time to pull above the 200 day MA (approx 9 months). Many believe a significant and meaningful recovery would require this phase of consolidation as a proper launching pad.

1987 Crash

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www.theinflationist.com

1. 2 failed attempts to break above the 200 moving average in 1988
2. Actual Recovery in 1989 in third attempt: after this, the markets stayed above the 60 day moving average. Shorters would be in alot of pain and would not see the previous levels again!

2001 Crash (Tech Boom)

2001 Crash: Recovery Analysis by theinflationist.com

1. A few false breaks above the 200 day moving average (late 2001, early 2002) which stayed ABOVE that level for 3-6 months before showing cracks which turned to declines forming lower lows
2. At the low of the decline (late 2002 to early 2003): the recovery broke above the 200 day MA and stayed well above this level. It even stayed above the 60 day moving average. If one were to short in mid 2003 at 9k hoping for a pullback, this level would not be seen again for a long long time!

2009 Financial Crisis (Commodity Boom)

www.theinflationist.com

www.theinflationist.com

1. Break above 200 day moving average is to be expected - we expect it to rally above the 200 day moving average - 9500-10000 target easily achieved.
2. Whether it pulls back below the 200 day is the question. Depending on which precedent (1929 vs 1987 vs 2001) you apply. The point is it is very dangerous to short at this level regardless of what the bears say. A short at 10000 levels AND above the 60 day moving average would be safer. Using all previous crashes and its subsequent recoveries - there is one uniform feature, the 60 day moving average provides key support. A short when markets rally far above the 60 day moving average would be safeR since it usually pullback to it before making higher highs.
3. Fundamentally, we are not convinced (or remain to be convinced) that this decline will follow the 1929 scenario. The unprecedented levels of capital injection will oil the system sufficiently to prevent a decline of that magnitude. If there is ONE thing that Ben Bernanke knows how to do, it would be to prevent a repeat of 1929 since his thesis was on the Great Depression. Of course, the price for this remains to be seen - our natural guess would be hyperinflation and currency crises of epic proportions. We do not believe (fundamentally) that a 1929 scenario is unfolding - but as always, keep an open mind.

For interest here is the chart of India’s NIFTY. Spectacular! We expect other markets to follow suit.

India NIFTY

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www.theinflationist.com

China H Shares

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www.theinflationist.com

• Conclusion: We aim to short India and have a net long in Australia 200 or China. Either way the market moves, we expect to be safe!