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Stock Market Panic in October?


There are stock market patterns that warn of the probability of a reversal in trend and possible panic or crash.

MINYANVILLE ORIGINAL The panic of the Hong Kong stock market in October 1997 -- similar to the 1987 stock market crash, and with remarkable parallels to the October 1929 crash -- raises questions. What is different about the month of October? Is October the month where market excesses are purged? If so, how can we tell if another panic may be imminent?

First, a little background about October stock market panics: They are worldwide. We have identified at least three one-day market panics of 10% or more in the Dow Jones Industrials (INDEXDJX:.DJI), the Hang Seng Index (INDEXHANGSENG:HSI), the Nikkei Index (INDEXNIKKEI:NI225), and the DAX (INDEXDB;DAX). Of the sixteen panics exceeding 10%, twelve of them occurred in October. Here is a Table of Panics in declining order of magnitude:

Even though it was less than 10%, the October 10, 2008 panic in the DJIA has been added to show the remarkable similarities in the dates of the panics in the Nikkei and the DAX. The flash crash on May 6, 2010 missed the cutoff for this table with only a 9.19% decline.
There were other occasions in the 19th century, most notably in 1857, which is when similar panics occurred simultaneously in Britain and the United States, even though there was no instant communication between the two countries. (Travel time in those days was nine to 10 days by ship across the Atlantic.)

Panics Vs. Crashes

Wikipedia defines a crash as follows: "A stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of a stock market, resulting in a significant loss of paper wealth. Crashes are driven by panic as much as by underlying economic factors. They often follow speculative stock market bubbles." A simple definition of a crash is a 20% or greater stock market decline.

Panics may be defined as sudden and "irrational" market declines within a one to three day period that are far larger than the normal range of deviations in price. Panics may be stand-alone, as in the 1987 panic, or occur within a larger crash setting, as in 1929.
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