A lot of publicity has been generated about the parallel between the 1987-88 market and that of 1929-30, but few realize how precise the technical parallel has been. In fact, the Elliott wave structure of 1982-1988 compares very closely with the 1924-1930 wave structure.
1.The first phase is 1982-1987 versus the 1924-1929 period. The former was a virtual replay of the latter. Both contained fifth wave extensions.
2. The second phase covers the crash period. The decline from the top in both 1929 and 1987 covered exactly 56 days to the crash low point (October 29, 1929 and October 20, 1987). Both declines count as the “A” wave of an “ABC” bear market.
3. The third phase covers the rally from the crash low point. In 1929-30 stocks rallied for 169 calendar days to April 16, 1930, then began the long “C” wave decline. In 1987-88 stocks rallied for 175 calendar days (from the crash low point) to April 12, 1988, when the Dow Jones Industrial reached 2115.90. The other indices failed to better their March 18 highs. The rally in both situations counts as the “B” wave of an “ABC” bear market.
Read Book: Pattern and Repertoire in History
The conclusion is that all the technical elements are in place for a repeat of 1930-1932. In the 1930-32 bear market stock prices declined from 297.25 (April 16, 1930) to a low reading of 40.56 on July 8, 1932, a decline of 86.4 percent. But a look at the chart shows that the decline was rarely dramatic. It can better be described as a persistent erosion. There were several “ABC”rallies that took the form of flats, zigzags and triangles.
The slow nature of much of the decline plus the many rallies served one purpose: It caused the market watchers to believe, to hope that the last decline was “the bottom.” It lulled the locked-in stockholders into a false sense of complacency and caused many to hold on to the bitter end. To quote the words of W.D. Gann: “Charts are records of past market movements. The future is but a repetition of the past; there is nothing new. History repeats and with charts and rules we determine when and how it is going to repeat.”