Gann Global Financial

Based upon the precedents during the Great Depression, the leg down from January 5th into March 6th was the second shortest and the second shallowest. We have been looking at he projections of what had occurred during the Great Depression into what would have been the projected low if we were to experience a comparable move down in percentage terms and in terms of the length of the legs down.

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Stock Market Begins to Divorce Itself from Great Depression Precedents

We looked at what the median would be. The best guess would be that the S&P 500 would drop to 600 and do so in the second week of April. We came into this low on March 6th, and it was the second shortest behind this decline into what would be a March 4th low. That was the January 1932 low, and it was the second shallowest in percentage terms, second to the June of 1930 decline.

If we had conformed to more to the averages during the 1930s, then we would say, “Boy, we really do have the DNA and continue to have the DNA of the Great Depression markets.” Of course, that was of great concern to me that our economy and the stock market would continue to unwind in that fashion.

Now after the March 6th low, we have experienced a stunning advance to the up side. Based upon a percentage retracement of the preceding legs down, our retracement of the decline of the January 5th high to the March 6th low has been slightly greater than any of the seven historic precedents.

By pushing up to 827, the S&P 500 actually exceeded fractionally the greatest percentage retracements during the Great Depression. That would have been the June of 1930 and the April of 1930. Now it has done so only fractionally, so in percentage terms, we are right at the limit of what one would expect based upon retracements, if we were to see comparable retracements to the Great Depression.

In addition, it has been shorter than the 28-day advance into the June 1930 bear market rally high. Now our advance has been 20 days. The shortest bear market rally occurred into the June of 1930 high. You can see that we have a number of days before we reach a comparable number of days into that high. The bottom line is that this rally in terms of retracing the previous leg down is the greatest velocity move in history compared to the Great Depression moves.

On this basis, the probabilities have increased for a bear market low being in place. I am not committed nor need to be committed to one side of the market or the other until I see additional trading action. In time, things always become clear. We have a market that has rocketed off the lows in 20 days. Obviously if we continue higher, at least on a percentage retracement basis, then we can say that this is really divorcing itself from what occurred during the Great Depression and that both this leg down and this percentage retracement are taking on characteristics that don’t rhyme with the Great Depression.

That being the case, then we are in uncharted waters as far as any historic precedent dictating or being able to give us input on what is taking place in the markets. Once that happens, then we have to say, “Okay, we have to use all of our tools to determine where we are at because we do not have a historic guide right here.” That is what checks us, and we say, “Hey, maybe some other people know what is going on in the market. Maybe they’ve got the insight.”

Obviously there are people who do different analysis than ours, in which case, they may make moves that are profitable and will have maybe even picked this March 6th low. Someone bought at the lows. I am very sober-minded about what I am able to do and not able to do. Unless I have history on my side, as one of the major components to our forecasting, then there are profitable moves that I am just not going to participate in, but hey, I am not worried about that. I learned a long time ago that the markets don’t pay a rate of interest. They make you money when the probabilities are in your favor based upon whatever analysis you are doing. There is more than one way to skin a cat. We skin a cat a certain way, and that is based upon following history.

We are in a very interesting place in the stock market. As I said before, if we do have a final bear market low, and this is the first leg up in a bull market, then we are then going to see a correction. There is going to be a correction that comes in, and that might be an ideal place to be a buyer, and that might be a place where I say, “All of our research is lined up, and there are certain dynamics playing into this that tell us that we have a bear market low in place and that it is time to buy into a correction.” That is as yet to be seen. More information is to come.