In December of 2013 Mark Hulbert of Market Watch (a Wall Street Journal publication) put out an article showing the chart below and tentatively examined the proposition that the Stock Market may be approaching a top. According to that chart (if the correlation was to be taken seriously) the market was set to peak in mid January and then the bear market would begin.
It was easy for skeptics to dismiss this back in December before the projected turning point, but in January the market did indeed destabilize, right on schedule and with a partial "recovery" at the same point that the 1929 market had its temporary uptick. The chart below shows the updated correlation.
One thing that it's important to acknowledge right off the bat is that patterns, whether in markets, birth rates, or rainfall shouldn't be taken as absolute predictors of future events. Patterns are only valuable when the underlying causal forces are taken into consideration. When speaking of markets those underlying causal forces are generally referred to as "fundamentals" (though not everyone is on the same page as to what exactly the fundamentals are). It's the real fundamentals that paint the most dismal picture for the U.S. stock market (and for the economy in general).
Quite often you'll hear the talking heads point to rigged statistics like lower unemployment numbers to back their rosy outlook (even though in reality a record number of Americans have actually abandoned the job market entirely) while completely ignoring the big picture. To be specific here, there is a widespread pattern of dishonesty regarding what has driven the bull market up since 2009 even though it's abundantly obvious to anyone who has watched this drama unfold.
The Federal Reserve has been pumping 85 billion dollars a month into the banking system since 2009 in what they call QE3. The dishonesty comes in when people attempt to treat QE3 as a minor variable in this equation, acting as if the "recovery" is legitimate and that this extended bailout program was little more than training wheels to help get the economy back on its feet. While some of these pundits seem to be genuinely naive, it would be foolish to ignore the fact that Wall Street has a vested interest in painting a rosy picture for consumer investors. Bottom line: monetary policy is the most important "fundamental" in this rigged economy.
The fundamentals that led up to the 1929 crash have a number of correlations with the run up to our current situation.
1. In the months leading up to the 1929 crash it was apparent that the global economy was slowing even though the stock market was booming. We're seeing signs across the board right now that the global economy is beginning to stutter.
2. The Fed had been engaged in "easing" (read money printing) in the run up. They began tightening monetary policy in 1928 and then came the crash. The Fed has announced recently that they will begin winding down QE3 this year.
3. The lead up to the 1929 crash was a period of irrational exuberance and wild speculative investment. It was widely believed that the stock market would continue to rise indefinitely. On September 3, 1929, shortly before the crash, one economist famously proclaimed that "Stock prices have reached what looks like a permanently high plateau." Reading through the headlines as the DOW broke record after record in 2013 we see the same psychological pattern in play. Even outside of the stock market itself we can see this trend. For example Bitcoin's unworldly run up to $1200 and its subsequent downturn in late 2013.
Obviously no one can predict with any certainty how this will unfold, and there's not much that the average person can do to alter the situation, so why spend the time examining these patterns now? Because when this bubble pops the same people who caused it will be out front and center selling their version of events. Their version will be a distortion at best, but it is their account that will be used to justify the measures that will follow (i.e. more banker bailouts on your dime). Don't fall for it.