Tags: Yardeni | scary | parallel | 1929

Yardeni Sees 'Scary' Parallel With 1929

By Dan Weil   |   Tuesday, 18 Feb 2014 11:06 AM

Edward Yardeni, president of Yardeni Research, notes in his daily market commentary Tuesday that a stock market chart is making the rounds showing that the Dow Jones Industrial Average has traded in a similar pattern over the last 1 ½ years to the 1928-29 period.

Mark Hulbert, editor of Hulbert Financial Digest, wrote on MarketWatch that the chart shows "eerie parallels" between the market now and just before the 1929 crash.

To be sure, Yardeni has qualms about the chart. "To make the chart work, the September 3, 1929 pre-crash peak has to be superimposed on this year’s peak, and the scales have to be manipulated to maximize the fear factor," he writes.

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"When the scales are indexed to 100, the scary parallel virtually disappears."

So what could make the market crash like it did in 1929-33?

"Another Lehman moment would do the trick," Yardeni says.

"Of course, there have been several variations of this 'endgame' scenario provoking anxiety attacks and corrections since the start of the current bull market. But Godot has yet to show on stage. Could it be that we are looking at the wrong stage in the wrong country? What if Godot is Chinese?"

As for Hulbert, he defends the chart. "One of the biggest objections I heard two months ago [when he first wrote about it] was that the chart is a shameless exercise in after-the-fact retrofitting of the recent data to some past price pattern," Hulbert wrote last week on MarketWatch.

"But that objection has lost much of its force. The chart was first publicized in late November of last year, and the correlation since then certainly appears to be just as close as it was before."

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