The Wall Street Waltz: 90 Visual Perspectives, Illustrated Lessons From Financial Cycles and Trends, Revised and Updated Edition

Chart 27

Roaring Twenties Revisited?

Want a good scare? How about a big rise in the stock market? Try stacking a 25-year chart of the Dow Jones Industrials on top of a chart for the 25 years leading up to the 1929 crash. They're virtually indistinguishable. These graphs give you the chance to ponder some risks in the current market. One graph commences during 1905 and ends with the infamous 1929 crash. The other one begins in 1965 and ends in 1986.

The similarities are both frightening and exhilarating. Each reveals a prolonged 17-year accumulation base, followed by a subsequent breakout and steep rise. The 1920s market finally broke out above 100 in 1924, on the way to a whopping peak of 380 five years later. The good news is that if these visual similarities represent something deeper, we might see the current stock market—which broke out above 1,000 in 1983—keep going, perhaps as far as 3,500 within five years of then, or early 1988.

The bad news is that the good times would be followed by a sickening bust. Recall the events of October 1929. If we are to believe that the 1987 scenario mirrors those events of 60 years past, we should beware a virtual free-fall.

There is other evidence pointing to similarities with 1929. For example, see Charts 1 and 2, which show that, among other things, the market's 1987 price/earnings ratio was actually higher than it was in 1929. Likewise, as Chart 30 shows, there was a takeover binge in the late 1920s very similar to what we've seen recently. ...