The 1929 & 2007 Bear Market Race to The Bottom
Week 57 of 149
Daily Volatility's 200 Day M/A hits 1.5% & A New Weekly
Chart: Lundeen Bear Box and Step Sum
14 November 2008
Color Key to text below
Boiler Plate in Blue Grey
New Weekly Commentary in Black
Here is the BEV chart for the Bear Race.
The weekly closing price BEV (Bear's Eye View) results for week 57 in the Dow Jones' 1929 & 2007 bear market's race to the Bottom are as follows:
1929: -43.69% from its all time weekly closing high price of 380.33
2007: -39.71% from its all time weekly closing high price of 14,093.08
Below is my volatility chart comparing 2007's 200-day moving average closing price volatility with 1929 bear market volatility.
The BEV chart above is weekly closing price data, the volatility chart below is daily closing prices data.
Note: 2007 values are actually positive. They were inverted so 1929 would fit on top and 2007 on the bottom. So for 2007, please forget the negative valuations and focus on the percentages.
1929, Wk 57 200 Day Moving Average Volatility: 1.15%
2007, Wk 57 200 Day Moving Average Volatility: 1.54%
(Remember, with the 2007 data up is down and down is up!)
Historically, daily 1% swings from the pervious day's closing price in the DJIA, while not uncommon, should not occur on an almost daily basis. The stock market is running a fever with its "Persistent, Extreme Volatility."
* This is the first week since July 1938 that the DJIA volatility's 200 day moving average closed above 1.50%.
The Step Sum is an indicator of market sentiment. When the underlying sentiment is bullish the Step Sum will rise. When bearish it falls.
Think of the "Step Sum" as the sum total of all the up and down "steps" in a data series as prices change over time. An Advance - Decline Line for a data series derived from the data series itself. Logically, to have more up days than down days during a bull market makes sense as does having more down days than up days during a bear market. Understanding the Step Sum is no harder than that.
Chart Comments for Week 57
It has been a month since the DJIA had its dramatic drop into -40% territory. After a significant drop I would have thought the Dow would have bounced up a bit more than it has. All major bear markets have good corrections to the upside. But the longer we wait for the market to go up, the more likely the next significant move will be down. This is a bear market. Making money in it will be hard.
The volatility in this market is disturbing!
The 40 Day M/A has reached levels not seen since October and November of 1929. Panic was the prime mover for that extreme volatility in November 1929, but not now. In 2008, the market wants to go down. But every time the DJIA falls below the "Dismal Scientist's designed market parameters" they give the market a "liquidity injection." Look at Thursday, 13 November's action. The DJIA is down 311 points from the opening, blame gravity for that, but then the DJIA soars up to 591 points above the opening price? So Thursday we saw a high/low swing of 902 points! That must have been a shot in the arm. No wonder the doctor's patient is twitching uncontrollably.
Let's look at a frequency distribution table for the 40 days leading up to the 40 day M/A peak value of 3.67% on 26 Nov 1929 and compare that with the 40 days leading up to Thursday 13 Nov 2008's value of 3.48%.
The 108 year average for daily volatility (29,659 daily closings) is only 0.72%. So in 1929, thirty of these forty days (75%) had abnormally high volatility. Not only that, but the market was crashing! The volatility situation in 2008 is even worse but with no market panic? There is no doubt about it, this market is sick with excessive "liquidity."
The chart below is from the table's data above.
Should we be concerned?
The last time the DJIA volatility's 40 day moving average passed over 3%, people on the wrong side of the market with leveraged positions were jumping out of windows over Wall Street. But today's huge swings in market volatility have not driven leveraged players to the brink. Why should they jump when the "policy makers" have made it clear that the full faith and credit of the US Government will make good their ruinous losses. Take a cue from AIG, use the bail out money for a nice vacation. Life is good.
This messing around with a bear market will not last forever. Before this bear is over, panic selling will happen and despair will settle over the land. "Policy" or not, this is what happens with these historic bear markets. Bull markets take delight in foolishness. So too do bear markets. The only difference is the outcome.
So it will not just share prices that the bear will humble. "Policy" is in a bear market too. Go ahead and reload Paulson's bazooka with another few hundreds of billions. That will just be a tasty snack for this Ursa Major of a Bear.
So I suspect that future volatility extremes in the 40 & 200 day moving averages will exceed those of 1929 no matter what the best and the brightest want to happen. In fact these extremes in market volatility are due to "policy" foolishness.
But when will it all fall apart? I don't know exactly, but my new Lundeen Bear Box & Step Sum chart might be useful in catching the turn.
The red plot above is breaking downwards. That means that there are now more down days than up as we go into 2009. As I shown in my article on the Step Sum, in past DJIA -40% bear markets this signaled further declines.
Nothing much has happened since mid October when the DJIA first closed -40% its bull market high. A month has passed with nothing notable in the DJIA except for its extreme volatility with no panic selling. This is so strange! The Step Sum indicates that the next move is down. All we can do is wait to see what happens.
Mark J Lundeen
14 November 2008
Dow Jones -40% Declines From 1885 to 2008 is the article that inspired this race of 1929 & 2007 Bear Markets. You may want to read that article to understand my "BEV Chart."
Dow Jones Industrials Average Market Volatility is the source for my volatility studies.
The Lundeen Bear Box and Step Sum is the source for my Lundeen Bear Box and Step Sum Chart
Note For the Record: Mark Lundeen does not want a devastating bear market in the next two years. However, in full view of Congressional Market Oversight Committees and under the supervision of Government Regulatory Agencies, things were done that I believe will make a historic bear market inevitable. If you have a problem with this bear market, contact Washington, not Mark Lundeen.
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