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In 1929 the market
topped out on September 4th. As with the Nasdaq high in March,
2000, the new highs came amidst much optimism about the stock
market. The market had been in a strong bull market for years and new highs
were almost taken for granted. In fact, the 9/4/29 Wall Street Journal did not even
mention the new highs in its "Abreast of the Market" column:
"Considerable
profit taking came into the stock market at times yesterday after the triple holiday, but
in most instances this supply was absorbed easily. New leaders were brought forward and
attracted heavy buying..."
- Wall Street Journal, 9/4/29 |
At market tops, investors
are always euphoric. It was this way in March, 2000 with the
Nasdaq. The day after the 1929 top the Wall Street Journal had a very
optimistic quote about the stock market's seemingly inexorable advance:
Although sentiment
generally is quite optimistic, it is noted that a large number of commission houses are
strongly advising customers to take profits during advances in the stocks being carried.
Similar recommendations in the past resulted in clients losing their long position and
paying higher prices for their favorite shares, so that it is now admitted that many
outsiders are not inclined to follow this advice at the moment. Many are
looking for technical corrective reactions from time to time, but do not expect these to
disturb the upward trend for any prolonged period.
- Wall Street Journal, 9/4/29
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This was one time when those clients should have sold. The DJIA did not
hit a bottom for 464 trading days, when it had lost 89.2% of its
value. It did not return
to the old highs of 9/3/29 level until November,
1954. This chart shows the
crash down into the 1932 bottom:
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