Is It Fair To Compare This Market To 1929?

Fair or unfair, the unapologetic Tom DeMark is making the comparison between today and 1929. Right or wrong isn't really the point here. But I do think it's an interesting way to help us keep an open mind and be aware of all the possibilities. Remember, at the end of the day, none of us know a damn thing about what's going to happen. All we can do is manage risk as best we can and live to fight another day.

Tom DeMark does not consider himself a "technician" per se. He likes to call himself a "market timer". And that's ok, call yourself whatever you want. I just appreciate the charts with all the colors and squiggly lines on them. But that's just how I roll.

Over the weekend, Demark pointed to the similarities between today's stock market and the days leading up to the 1929 stock market crash. From Bloomberg:

“The market’s going to have one more rally, then once we get above that high, I think it’s going to be more treacherous,” DeMark says. “I think it’s all preordained right now.” He feels this is probably irrespective of how and when the crippling impasse in Washington is resolved. “If you look at the new highs and new lows on the [New York Stock Exchange],” he says, “every time we made a higher high, there were fewer stocks in the index participating in that high. It’s getting narrower.” And once that happens, you typically get a collapse.

I may not agree with everything that DeMark has said in the past. In fact, I've gone out and publicly disagreed with him in a few cases. But that's what makes a market right? I respectfully disagree with some of my best friends in the world all the time. I've been arguing with my market participating buddies for over a decade, and I think that's probably even made us better friends. The last thing you want is a yes-man that sits there agreeing with everything you have to say right?

So while DeMark and I may have different strategies and opposing view at times, I can't disagree with his comments about market breadth. This is something I've been harping on for a few months. With each new high in the market, you want more participation, not less. So ith fewer and fewer stocks participating in the rally (i.e. making new 52-week highs, % of stocks in uptrends), it's just inevitable to me that the market rolls over with the rest of its components. So either we get a rotation into the underperformers and a renewed expansion in participation, or the market sells off hard. Either one is possible, but my experience tells me to expect the latter.

How is your portfolio prepared for a market that doesn't just always go up? Are you prepared for it at all? Or are you just long and strong hoping for the best like the majority of the people I talk to?

Sources:

Hedge Fund Chart Guru Tom DeMark Sees Dark Days Ahead (Bloomberg)

This Ominous 1929 Parallel Warning of a Stock Market Crash (BusinessInsider)

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