A Melman Minute — March 1, 2007
| By | Leonard Melman |
|---|---|
| Date | March 1, 2007 |
The Tuesday-Wednesday combination of a drastic sell-off followed by a tepid rally reminds us of the historic bear market of 1929-1932. Anyone who believes the market simply plunged in one, unending, straight-line move to the downside during the "Great Depression" is in error. In fact, that market made six dramatic counter-rallies during the 33-month drop from September 1929's high of 380 on the Dow Jones Industrial Average to the ultimate low in June, 1932 of 40. Each counter-rally approximately half the previous decline. Here is the record:
| Time Span | DJIA from-to | Size of decline | Size of recovery | PRPD (*) |
| 9/29 - 12/29 | 380 - 196 | 184 points | ||
| 12/29 - 05/30 | 196 - 300 | 104 points | 56% | |
| 05/30 - 07/30 | 300 - 210 | 90 points | ||
| 07/30 - 10/30 | 210 - 248 | 38 points | 42% | |
| 10/30 - 01/31 | 248 - 154 | 94 points | ||
| 01/31 - 03/31 | 154 - 194 | 40 points | 43% | |
| 03/31 - 06/31 | 194 - 120 | 74 points | ||
| 06/31 - 08/31 | 120 - 156 | 36 points | 49% | |
| 08/31 - 10/31 | 156 - 085 | 71 points | ||
| 10/31 - 11/31 | 085 - 120 | 35 points | 49% | |
| 11/31 - 02/32 | 120 - 068 | 52 points | ||
| 02/32 - 03/32 | 068 - 092 | 24 points | 46% | |
| 03/32 - 06/32 | 092 - 040 | 52 points | ||
| 06/32 - 09/32 | 040 - 081 | 41 points | 79% |
(*) - Percent recovery of Previous Decline
The much stronger percentage accomplished during the final rally signaled the end of the great bear as the next decline, which ended in March, 1933, halted at the 50 level on the Dow, well above the preceding low, and the market began a long, laborious rally which carried the Dow all the way back to over 180 by 1937.
The unanswered question at this moment is whether the recovery from the one-day sell-off will continue upward and eventually exceed previous highs, or whether it will stall out near the 50% level (about 250 points above Tuesday's lows) and then turn down once again.
The market will tell us in due time.
It is also worth noting that the sharpest one or two-day declines normally occur inside bull markets while, conversely, the greatest one-day percentage gains in market history actually took place within the greatest bear market on record.
So, one day, by itself, proves very little. It is the subsequent market actions that is all-important.
Just as a note of interest, the chart on the Dow Jones Industrial Average from 1929 through 1937 bears an eerie resemblance to that of the widely-followed NASDAQ Composite from late 1999 through early 2007. In the case of NASDAQ, the average plunged from 5,000 down to 1,100 in one swift movement, and then has taken five years to recover to the recent 2,500 high - which is barely one-half of the all-time high. That is a virtually identical performance compared to the "Industrials" over a similar time span.
DISCLAIMER
The information presented above is based on data which we believe to be from reliable sources, but the accuracy of which cannot be guaranteed. Any opinions or predictions contained herein are those of the editor and are likewise offered also for information purposes only.