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The Greatest Sucker's Rally in History?

Posted Sep 15, 2009 01:20pm EDT by Henry Blodget in Investing, Recession
Related: dia, spy, qqqq, ^djia, ^gspc

In the past six months, Aaron and I have talked a lot about the similarity between the rally of early 1930 and the one we're having today.

The early 1930 rally came after the market had fallen nearly 50% in the fall of 1929.  The spring rally took the market up nearly 50% again, to a level that was only about 20% below the previous peak.

That rally, of course, was also the biggest sucker's rally in history.  After the market peaked in April 1930, it crashed again, eventually ending up down 89% from the 1929 high and more than 80% from the 1930 high.  The market did not reach the 1930 high again for another quarter of a century.

Our current rally came after a crash that was actually slightly more severe than the 1929 crash (53% versus 48%).  It has taken the market up more than 50% from the low.  Our current rally has also lasted slightly longer than the 1930 rally did.

Today's rally, of course, may actually be the start of a great new bull market, one that will climb the "wall of worry" back toward the previous record highs.  On the other hand, it may yet also be another version of what happened in 1930.

We won't know for sure what today's market is until we look at it with the genius of 20/20 hindsight.  As yet another reminder of how similar the patterns up to this point have been, check out this excellent compilation of New York Times clippings from early 1930 put together by Dan Alpert of Westwood Capital.

Dan's complete compilation is contained in a broader research piece, which is embedded at the end.  The slides below contain excerpts from February-April, 1930:
The Greatest Sucker's Rally In History, Play By Play

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