Now And The 1937 Dow Bear Market

What happened directly after the Dow Jones Index completed its 5-Wave downwards pattern from 1937 - 1938?  And might the same thing unfold in today’s market?  Let’s take a look.

We had an ABC Up retracement that lasted about seven months that resulted in a 62% gain for the Dow Jones.  It also took prices up to the 61.8% Fibonacci retracement from the 1937 price high to the 1938 price low.

I’m certainly not saying this will unfold in mirror-image fashion today, but that an “ABC” corrective pattern is expected to follow 5-Wave Impulses so it’s certainly not out of the question or realm of possibilities in today’s market.

As great as a 62% gain is in seven months, was that the absolute price low?  Unfortunately no, as price actually peaked where I have drawn the “C” Wave (and blue line) and then began chopping around, never to exceed the 160 peak before breaking eventually to new lows in 1942 before the bottom was firmly in place and a massive rally began without looking back.

Let’s get some broader context and see what happened before and after 1937-1938:

(Click for full image)

I didn’t take the time to label each wave, because I wanted to show you the larger picture both before and after the specific 5-Wave structure in 1937 that seems to look eerily identical to today’s 5-wave decline off the October 2007 highs.

In this case, the 1938 low was wave (A); 1939 (or late 1938) high was Wave B; and finally the 1942 price low was Wave C.

The question now becomes IF history repeats itself, then the 5-Wave structure we are seeing might be part of a larger bear market… perhaps Wave 1 of the C wave (as in A=2000-2003; B=2003-2007; C=2007-????).

I’m not ready to make that call yet, but I did want to reference the past for possible clues.  The key word is “possible” clues, or guidance from years past in the stock market.

We’ll have a better picture as more price data comes in, but for now, let’s take it day by day and try to manage risk and seek high probability (trading) opportunities as they develop within the unfolding structure as best we can.

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