- $1,160 is Gold's Next Target Level: Charts
- Why Nikkei Won't Top 10,500 in Near Term
- MSFT Stock Rise Has Little to Do with Windows 7
- What Now for Dow? Look to China for Clues
- How Far will Asia Go? Look to Kospi, Not Dow
- Betting on Aussie Parity With Dollar? Don't Hold Your Breath
- Profiting from Kraft's Takeover Bid for Cadbury: Charts
- Charting Sony: Game On!
MOST SHARED
- U.S. May Wind Up Green With Envy
- Warren Buffett to CNBC: 'I Haven't Bought American Express In Years'
- CNBC Video: Warren Buffett & Bill Gates - Keeping American Great
- EADS Cautious on Full-Year Forecast after Earnings Dip
- Japan Third Quarter GDP Jumps; 2010 Growth May Slow
- Stronger Yuan Needed for Global Rebalancing: IMF Chief
- Taking a Page from Obama's Asia Agenda in Investing
- Thai Economy to Grow up to 3.5% in 2010: Prime Minister
- Warren Buffett to CNBC: 'I Haven't Bought American Express In Years'
- CNBC Video: Warren Buffett & Bill Gates - Keeping American Great
- U.S. Stocks Rally for the Second Straight Week
- Dollar is Not Plunging—So 'Calm Down': Market Strategist
- Strategists Say Markets Have More Upside — But How Much?
- Hirschhorn: Risk-Averse Traders
- Roginsky: A Funny Thing Happened on the Way to Financial Reform
- This Year's Biggest Thanksgiving Leftover: Cash
- TV Series Inks Unique Deal For Fight
- GM to Start Repaying US Government Loan
- Cisco Ups Tandberg Bid, Claims Over 40% Backing
- 'Significant Weakness' Still Ahead: Fed's Hoenig
- BlackRock: Central Banks To Be Net Buyers of Gold
- Stronger Yuan Needed for Global Rebalancing: IMF Chief
- Washington Not Trying to Contain China: Obama
- Japan Third Quarter GDP Jumps; 2010 Growth May Slow
- How Much Do You Know About Green?
- JP Morgan to Bid Over $3 Billion for Cazenove Stake
RSS FEED
Charting Asia
Text Size 
The key question facing markets these days is the difference between recession and depression. A recession is an economic slowdown that may last for 6 to 18 months. A depression is an economic pullback that may last from two to four years. We'd rather not have a recession at all but if we have to choose one or the other, I'd rather be recessed than depressed!
In either case, the market moves in anticipation of the event. The market decline develops before the fundamental signs of a recession or depression become evident. The market leads the confirmation of conditions.
 |
CLICK CHART TO SEE IT IN FULL SIZE |
The market also leads a recovery. In a recession, the market will develop strong trending behavior many months prior to the official confirmation of the end of a recession. This recovery provides trend trading opportunities.
In a depression the market will develop a long-term consolidation pattern. This is an investment period that lays the foundations for generational fortunes. Trend-trading opportunities do not develop for several years. This consolidation and accumulation phase concentrates on creating income flow from dividends. The fundamental end of a depression is not recognized until many months after the market has already reacted.
Right now, market is hovering near significant support levels. The closest of these we call recession support targets. The lowest of these we call depression targets. Many analysts have compared the current market situation to the market collapse in 1929. This week we look at charts from the 1929 period. In particular we look at the similarity of behavior.
The above chart is the weekly Dow for 1929 to 1930. The significant features are these:
- The rapid fall is followed by a rebound and rebound failure.
- The primary rebound failure occurs rapidly with another market collapse.
- The pile driver low is retested within 12 months
- Support, defined by the pile driver low, is not successful
The pink circle shows the comparable position of today’s market. This is a period of high volatility, but volatility lessens and the market moves into a more clearly defined trending behavior. This pattern of behavior suggests that a rebound from the current support levels may persist for around 20 weeks.
More From CNBC.com ...
- Stock Picker: Buy Sustainability — NOT Dips
- Best Retirement Moves to Make Now
- What the Pros Say: 70% Chance of a 'Massive Rally'
- More Asia Pacific News
The important feature is the rapid failure of the trend line followed by a rapid failure of the pile driver low support-level. The failure of pile driver support brings the really bad news. This failure is acute because the pile driver low support does not equal any previous historical support level.
The low of the market develops in 1932, about three years after the 1929 crash. The key trigger is the failure of support set by the pile driver low. The disaster is that it takes 25 years for the market to exceed the high of 380 set in July 1929. This is why the Depression is referred to as a generational event. The current situation has the potential to have the same generational impact.
 |
CLICK CHART TO SEE IT IN FULL SIZE |
The key trigger that separates a recession from a depression is the behavior of the rebound from the pile driver low. After the 1987 crash the rebound quickly developed strong trending behavior. The move above the midway point in the market fall signaled a continuation of the uptrend. This is recession behavior. Depression behavior is when the market fails to move above the midpoint of the extreme fall area.
On the current Dow chart, the area near 12,000 is the key level to watch. Failure to move above this level suggests a depression scenario may develop.
A sustained move above 12,000 signals a recession. There is one caution in this analysis. The Dow has not yet developed a confirmed pile driver bottom pattern on the weekly chart. The low of this pattern will determine the mid-point resistance level that is used to signal a recession recovery.
Markets will not behave the same way as in 1930, but they will develop in a similar fashion. There is a high probability that these behaviors will develop in shorter time frames.
If you would like Daryl to chart a specific stock, commodity or currency, please write to us at . We welcome all questions, comments and requests.
CNBC assumes no responsibility for any losses, damages or liability whatsoever suffered or incurred by any person, resulting from or attributable to the use of the information published on this site. User is using this information at his/her sole risk.
- Where, what, how.
- Warren Buffett and Bill Gates spoke to Columbia students, and Buffett made the students a startling offer.
- For the chief of cable company Comcast, growth has been about making deals – generally very large deals.
- Some companies may start using insurance to shift carbon risk from their balance sheets to maybe... yours?
- The president and founder of Genesis Today wants to improve America’s health, and thinks Wal-Mart can help.
- Switzerland's privacy watchdog is taking legal action to force Google to make changes to its Street View service.
Data is a real-time snapshot *Data is delayed at least 15 minutes