As for whether this a bear-market rally or something more, the jury's still out. If the DJIA (7776.18) and the D-J Transportation Average (DJTA) can trade above their early January 2009 closing reaction highs of 9034.69 and 3717.26, respectively, it would be the first Dow Theory buy signal in a long while.

Still, this rally does indeed feel different from the others we've experienced over the past few months:

1. It began from a generationally low oversold reading and came with a downside non-confirmation, meaning that, while the DJIA and S&P 500 (815.94) broke below their respective November 2008 lows (read: undercut lows), the NASDAQ (1545.20) did not.

2. The number of stocks making new annual lows peaked on October 10, 2008; even though the major averages have since gone lower, the number of new annual lows has been shrinking since October 10.

3. The current rally has broken the S&P 500 out above the downtrend line that's contained previous rallies over the past 3 months.

To compare the current stock market to the market of 1937-1938: The DJIA went into a tailspin in August of 1937 that would lop 41% off its value. In that “democratic decline,” there was nowhere to hide: Both stocks and commodities crashed. That should sound familiar.

The downside drubbing ended in November 1937, at Dow 113.64, with the senior index then rallying some 20% into January of 1938. From there, stocks stumbled into March and, in the process, made an undercut low at Dow 98.95; and, that was it. The DJIA would then rally nearly 60% into its November 1938 high of 158.41. (As a sidebar, the “undercut low” that occurred in March 1938 (at 98.95) would not be breached until May of 1942, coincident with the commencement of The Battle of the Coral Sea.)

The following chart compares 1937-1938 to the current stock-market pattern:


Click to enlarge

Not only are they themselves similar, but the indicator overlays are also strikingly similar. As Mark Twain once said, “There is nothing new in the world except the history you do not know.”