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Is this it?

Posted by Dan on February 15, 2017

For years I have been updating a 1920s comparison chart on this site, until mid 2015. That’s when the current bull market started falling behind compared to the 1920s, as reported in this post. I want to revisit this chart today and the reason will be clear from this updated chart:


The current bull market has reached the point where it is just as long as the great 1920s advance. And the market is at new all time highs. The recent run-up has not been nearly as spectacular as the final push in 1928-29, but the price pattern still shows a nice similarity over this entire period.
Of course, there is no law that says that bull markets have to be equally long. But I zoomed in a bit more closely and compared the recent price action to the final year before the 1929 peak. This is what I got:


Daily price action doesn’t get much more similar than this, especially in the final 7 months. A six month sideways phase gave way to a final rally that lasted a little over three months. Even the smaller six weeks sideways before the final three weeks upward thrust to the top gets repeated. If this is not a mere coincidence then we are now within days of a major top.
The gains are smaller (which is not abnormal in a bull market that “only” triples from its starting lows), but the price pattern is almost a photocopy.

What could go wrong? Well, it’s never good to get married to a price pattern. There is also another possibility to consider here. In the 1920s the final runaway mania stage didn’t start until the Fed had really started hiking interest rates several times in a row. Bonds are not a place to be when rates are going up (which pushes bond prices down), so more investors started getting into stocks (which happened to be going up every day, making them hard to resist).
This time the Fed has waited longer to hike rates, so the final runaway stage may just be getting started now. We will know if the market keeps going up in March and April. In the 1920s an acceleration came once the market had more than tripled from its lows and we are now very close to triple again. This could be a sudden “phase change” just like water starts cooking at a certain temperature. Vapor behaves differently from liquid water, and just so a market that goes into blow-off mode behaves very differently. Buying begets more buying and people who stayed in bonds start feeling stupid compared to their friends who are driving nice new cars they bought on the back of their stocks market gains. It starts feeding onto itself.
Sure, some people will keep warning about overvaluations. But investors won’t listen. Why not? Because it is well known that most investors suffer from “superiority bias“. Just like almost 90% of drivers think they have above average driving skills, investors typically believe they have above average investing skills. If you happen to think that your investing skill is below average then you will probably keep your money in a savings account, or hand it over to a money manager (who is usually having even more superiority bias than a retail investor). The result is that participants in the stock market are almost invariably believing that they will be able to get out before stocks go down.
This may happen again and we are probably close to the point where this phase change can start.

6 Responses to “Is this it?”

  1. Hi Danny,

    Thanks for sharing your very interesting analysis.

    Some time ago you wrote the text below about the 88 year cycle.

    What are your thoughts now on this cycle? Is it still valid?

    Thanks very much for your reply,

    Paul Maasson

    Exactly 88 years later theParis stock market crashed in 1882 .

    Based on this crash cycle, we should thus watch out in 1929 + 88 = 2017 as the next year to bring us a major stock market mania and crash.

    Where do these 88 year and 208 year cycles come from?

    It are combined planetary cycles. 88.37 years is the triple Saturn cycle. It is also 8 solar cycles and 10lunar precession cycles . The lunar precession cycle (8.85 years) is often overlooked, but actually quite important as it determines when we get spring tides and plays a role in weather and climate as well. The 208 year cycle is equal to 19 solar cycles and 11Metonic cycles . It is also 11.5Saros cycles . It is 10.5 times the Jupiter-Saturn synodic period (19.8589 years), and 15 times the Jupiter-Uranus synodic period (13.8119 years). Through a more complex interaction, a 208 year periodicity also emerges from the lunar cycle. Seethis article .

    The 4666 day cycle, is a shorter term cycle that resonates closely with a bunch of planets. Jupiter and Neptune are conjunct every 4668 days (heliocentric) or 12.8 years. Venus and the Earth are conjunct every 1.59869 years. 4 * 1.59869 = 6.39476 years Earth and Mars are conjunct every 2.13535 years. 3 * 2.13535 = 6.40606 years Venus and Mars are conjunct every 0.914227 years. 7 * 0.914227 = 6.39959 years The implication is that every 6.4 years the planets Venus, Earth and Mars come back to the same relative position in the sky. Every 12.8 years (~4666 days), the planets Venus, Earth, Mars, Jupiter and Neptune return to the same relative position in the sky.

    If we combine the 88.37 year cycle with the 208 year cycle, then there is a resonance at 153.6 years. 153.6 years = 12 * 12.8 years (4666 days). 153.6 years = 14 * 10.97 years (= 14 solar cycles).

    Now it all fits together.


    Op 15-2-2017 om 13:24 schreef LunaticTrader: > > Danny posted: “For years I have been updating a 1920s comparison chart > on this site, until mid 2015. That’s when the current bull market > started falling behind compared to the 1920s, as reported in this > post. I want to revisit this chart today and the reason will be cle” >

  2. Julien Benichou said

    Hi Danny,I need to re download the software, can’t find where.Best,Julien 

    • Danny said

      Hi Julien,

      I am merging the blog with the site and the page with the download file is not back up yet.
      Just email me and I will send you the files.


  3. Tamar said

    Danny – Given your prediction above, what advice would you provide to someone who wants to take advantage of a market crash, but doesn’t short stocks? Thanks.

    • Danny said

      Hi Tamar,

      There are a couple of ways. Some people buy SPY put options, which would go up if the market goes down.
      If you are not into options then there are ETF that allow you to benefit from a decline in the market, for example SH or SDS.
      Another way is to buy VIX related products. VIX index would go up if the market declines. VXX is a way to benefit from increased volatility when market crashes.


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