George Marechal's Stock Market Forecast 1933 to 1948 │ Law of the Market

In 1933 the incoming U.S. President Franklin D. Roosevelt reached out to Roger Ward Babson for a long range forecast for the stock markets. Babson, a very successful entrepreneur, economist, business theorist, investor, and philantroph with a huge fortune, was a household name since he had predicted, back on September 5th 1929, that "a crash is coming, and it may be terrific". Later that very same day the stock market on Wall Street declined by 3% and this became known as the "Babson Break". The big crash with most catastrophic losses followed on October 24 and 29, 1929 (Black Thursday and Black Tuesday). When the U.S. finally reached the height of the Great Depression in 1932 and the stock market was at an all-time low, 75% of its value was wiped out, and shares in any company were virtually worthless. Thousands of people were ruined, and soup kitchens sprang up on street corners as people lost their jobs, savings and homes. 

To comply with President Roosevelt’s demand, Babson in turn consulted the largely unknown Canadian mathematician George Marechal, who recently had managed to work out how the highs and lows of the Dow Jones Industrial Index repeated themselves in predetermined sequences. So finally it was Marechal who produced a Dow Jones Index Forecast Chart over the next 15 years for the Roosevelt administration, that proved to be spectacularly accurate. So confident was Marechal in his prediction at the time that he had his chart copyrighted. His friend Alan H. Andrews (the inventor of Andrews’ Pitchfork) described it as a "chart no government economist, no college professor has enough knowledge to even approach or courage to try to duplicate." 

Comparison of Marechal's 1933 forecast with actual data of the Dow Jones Index from 1934 through April 1951
[published by Garfield A. Drew and Edward R. Dewey in Cycles Magazine, October 1962].

Edward R. Dewey confirmed in 1962 that still little to nothing was known of Marechal's method, though a fund manager had offered him $20,000 for his secrets, or, alternatively, to operate a five million dollar fund on the basis of these secrets and to share profits. But Marechal did not accept either offer, and finally died at the age of 90 without ever revealing how he was able to calculate market movements with such uncanny accuracy. However, what is clear is that he was using a version of Babson's Normal Line. The annotations to his chart later added by his friend Alan Andrews show that Marechal plotted turns with what are now known as Median Lines. Dewey concluded:

"The important thing about this study [chart of Marechal] is not the exact precision by which it came true, or the amount of money you would or would not have made if you had followed it. The important thing is that it shows that the market has predictable patterns. In other words, that the seeming disorder of market fluctuations really is subject to law, and that this law is learnable."

In 1948 Garfield A. Drew, another friend of Marechal, reproduced the forecast in his book "New Methods For Profit in the Stock Market". Drew stated that one of the original copies of the forecast had been in his possession since 1935, and as each year was divided into six parts he added in his book the actual fluctuations of the Dow Jones Industrial Averages by plotting the high and low for each two-month period. Drew commented on the famous chart:

"Clearly, the pattern of the forecast and the actual pattern of the market miss many times in detail and exact timing. Nevertheless, the broad picture of the trends from 1934 through 1947, at least, is remarkably similar. The basic downtrend from 1936-37 to 1942 is plain, and likewise the uptrend from 1942 to 1946, although the latter shows up as a much more zigzag pattern in the forecast than was actually the case. Thus, the year 1944 by itself, for example, appears as a down period, whereas it was really an up year. When the year 1947 ended, the Dow Jones Industrial Average had spent 16 months within a 16% price range. As far as the situation at the time the comparison in [the figure] ends is concerned, it is evident that, if the broad accuracy of the preceding 14 years is to be maintained, 1948 must, on the whole, witness a rising price level. A definite down trend going substantially into new low territory by the year-end would produce a greater discrepancy between the forecast pattern and the actual course of prices than at any other time in the record. The fact remains to be seen at this writing, but, in line with his original forecast made years before, Marechal always insisted that 1946-47 was not a "bear market" but an interruption in a long upward trend comparable to the break and market hesitancy during 1926 in the long upswing from 1921 to 1929.”

"In this figure the Dow Jones Averages are plotted from 1897 through 1962. On this chart are a number
of "resistance" lines. The original worksheets for Marechal's forecast look just about like this chart,
except that there were a great many more lines and, thus, a great many more intersecting points.
Marechal's secrets consist fundamentally of how to draw the resistance lines and how to select the
significant intersections" [Edward R. Dewey in Cycles Magazine, October 1962].