Back in November at a point where it looked like we had had a capitulation by the bears and "A" bottom was in place I started a series looking at past similar events so we could have some frame of reference.

I thought it would be apropos to look at other crisis periods in history when we saw the same type of massive withdrawals of capital by the investor class and yes, they did exist. We saw it in recent history with 1974, 1987 and again in 1991 and 1998.

Since we are in this "Twilight Zone" between market cycle moves I thought I would spend some time doing the analysis on other major recessionary periods to see how they compare. Here is a summary of other major pullback periods.

1901-1903: -46.1%..Assassination of President McKinley along with a severe drought
1906-1907: -48.5%.."Panic of 1907" due credit crunch in New York and President Roosevelt's AntiTrust drive.
1916-1917: -41%..US being drawn into World War I
1919-1921: -46%..Bursting of the first "Tech" Bubble (Automobiles)
1929: -47.9%..End of the roaring 20's and beginning of the "Great Depression"
1930-1932: -86%.."The big one" 86% loss, actually a continuation of the 1929 problem
1937-1938: -49%...Wall Street scandals
1939-1942:-40.4%..World War II-Attack on Pearl Harbor
1973-1974:-45.1%..Vietnam/Watergate
1987-1988:-56.6%.."Black Swan" event...No clear blame attributed
1990-1991-26.8%..Culmination of S&L Crisis (Loss of 747 banks)
1998: -23.8%..Long Term Capital Management (First Hedge Fund to blow up)
2000-2002:..-53.7%..Blamed on the Tech Bubble (Irrational Exuberance)
2008-?:-53.3%..Collapse of derivative markets (Hedge Funds)

I will put up some comparative charts and you will see that there are similarities to what we are experiencing now and what the aftermath will most likely be. When I get finished I will give you a spreadsheet to get a feel for not only the depth, but the recovery and what happened AFTER each of these periods.

Let's start with the 1987 Crisis which was just as psychologically devastating as the one we are going through now. It was labeled as a crash because we saw a greater than 25% loss in just 3 weeks.



It's all on the chart, but look at the rally off of the bottom, the retest and then the return to a new bull run which got prices back to where they were.

In 1991 we had another 26% decline, but with a huge capitulation at the bottom we saw prices return to the old highs within 7 months.


Let's look at 1998:



In each case we see a retest within several months and it is the bounce on that retest that is the real buying opportunity. You can play the immediate oversold rally, but you have to always be ready to exit because the initial players are not going to sit around waiting for better times. As soon as they see a slowing of momentum they are going to get off the train and wait for the next dip to buy again.