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6/15/07
Today's NASDAQ: Reminiscent of the Great Depression
Proprietary Graphs, Tables and Analyses - All Rights Reserved
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Have Stocks Risen Too Far, Too Fast?
Click the above link to see the 110 year record!
DJIA (1922-1941) vs. NASDAQ (1992 - 2007)
A
12/31/1921                12/31/1926                 12/31/1931                12/31/1936                12/31/1941
C
D
B
E
F
A partial recovery of the Dow (E-F) ended in 1937 (F). The most troubling attribute of the chart is the severe Bear
Market which began in 1937 and ended in 1942 after a decline of 52%(F-G).

How can I use this information?
There were those who said that a crash similar to the 1929 crash would never happen again. The above graph of the
NASDAQ amply proves the weakness of that assertion. In spite of the size of our economy and the advances in
technology, flaws in human nature still have the capacity to repeat and even exceed the excesses of the past. Will the
NASDAQ suffer a second severe downturn like the Dow experienced (F-G)? No one knows... except those who
possess sufficient power to move the markets. The rest of us must resort to conservative financial principles and a life
view that copes well with the unknown. Be tenacious about diversification, take calculated risks using proven methods
and reduce your debts to reasonable levels. Debt elimination should be the ultimate goal. History is sadly full of
examples of wealthy entrepreneurs who never paid off their home mortgage, only to find their fortunes reversed and
their homes foreclosed. Pay off your mortgage so you won't have to worry about a place to live. Conservatism may
limit your upside potential, but you will sleep better if the markets turn against you.

SignalTrend's unemotional computer timing system is currently bullish, but it may change its buy / sell
signal in the near future. If that happens, SignalTrend will notify you by email. Remember, SignalTrend's
stock market timing system was backtested 100 years with excellent results!

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G
436%
(A-B)
DJIA
NASDAQ
5/31/1992                 5/31/1997                   5/31/2002                   5/31/2007                   5/31/2012       
372%
(E-F)
-89%
(B-E)
697%
(A-B)
135%
(E-F)
-78%
(B-E)
-52%
(F-G)
Backtested 100 Years !
Summary:  
There is a disturbing correlation between the NASDAQ index during 1992-2007 and the DJIA during 1921-1936.
Each period experiences a boom, bust and partial recovery of surprisingly similar magnitude, slope and duration.

The graph below superimposes 16 years of the NASDAQ (1992-2007) over the Dow (1921-1942). The charts of each
index has been aligned to clarify  the similarities between the Dow and the NASDAQ during those  two periods.

The NASDAQ chart reflects the Tech Boom (A-B) as the NASDAQ soared to its peak (B) in 2000. The NASDAQ
crashed in 2000 (B-C) and then staged a sucker rally (C-D).  The Tech Wreck continued until its bottom in 2002  (E).
The NASDAQ has made a partial but significant recovery (E-F) since the 2002 bottom.
The Dow chart shows
the roaring twenties
(A-B), the 1929 peak
(B), the crash of 1929
(B-C), the sucker rally
of 1930 (C-D)  and the
prolonged stock
market collapse that
continued until 1932  
(D-E).

Financial collapse,
hunger and severe
unemployment were
hallmarks of the Great
Depression which
ended after World War
II.
The Dow Jones Industrial Average (DJIA) is shown in blue and the NASDAQ is shown in gray.  The NASDAQ
(1992-2007) is superimposed over the Dow (1921-1942) to show the correlation between the indexes during
those periods. The dates and returns pertain to the DJIA if in blue, the NASDAQ if in gray. The daily close for
each index is plotted in arithmetic scale.