It Happened Twenty Years Ago...
It was twenty years ago that Boo taught the band to play.
Well there's too much traffic I can't pass
- I Can't Drive 55 (Sammy Hagar)
It was twenty years ago on October 4, 1987 that the market began to become unglued, leading to Black Monday, October 19.
It was twenty years ago that Boo taught the band to play.
Of course, few on Wall Street believe in cycles and things that go bump in the night until they get goosed by a Black Swan. However, the evidence is that October in years ending in seven aren't a good time to press the bet on the pass line. Hey, even Stevie Wynn unloaded some chips last week. If the house is taking some chips off the table maybe we should listen. The fact of the matter is that Hoofy has been crossed by Lady Luck in more than a few Octobers.
Interestingly, the market turned up this year on September 11, which was the 55th calendar day from the July 19 high, 49 to 55 calendar days being a panic or culmination cycle.
I guess even a few Harvard alums and the Working Girls weren't going to let the market drive 55.
On September 11 the S&P stabbed back through its overhead 200-dma in preparation for the slaughter back over its 50-day moving average a few sessions later on September 18, when Ben lowered the Boom-Boom on the shorts, and the level playing field.
So, although with the benefit of hindsight, once that 55 day panic cycle was over and the 200-day moving average was converted, one certainly could have entertained the notion that the S&P was in a position of strength. Maybe one could have ascertained the agenda: Hey, if it walks like a duck, it's probably a goose.
However, despite the market's newfound complacency, Goldilocks may not be out of the woods quite yet. October 4 is seven squared or 49 calendar days from this year's August 16 low. Panicky waterfalls and blow-offs alike many times reverse in the window of this 49–55 day culmination count.
As Mark Twain said, "History, although it may not repeat exactly, often rhymes." So it will be interesting to see this year if the first week of October is a test high as it was a snapback failure in 1987.
This would coincide with a mirror image foldback I have described in regards to the behavior of the market in 2002 when it made a capitulation low in July, followed by a spike high in August, and an ensuing test of the July low in early October.
Was this year's capitulation peak in July and spike down in August a mirror image indicating a potential test of the highs in early October to be followed by a decline?
The twenty-year cycle was an integral component in the work of the late, great technician W.D. Gann. Sixty months, or five years, is an important time factor within this twenty-year cycle. For example, in 1992 the low for the year was scored in October. In 1997 the DJIA saw a thousand point drop in October. And, of course, five years later in October 2002 the market clawed out a bear market low.
Interestingly, forty years ago, or two cycles of twenty years ago, in 1967 the market also saw a Red October as the DJIA declined 10% from 943 to 849, into the first week of November. Forty years earlier, in 1927, the DJIA sank from 200 to 180 in the month of October.
Of course, a look at the S&P currently shows that it has consolidated for three days after Monday's breakout.
Click here to enlarge.
The index appears poised for a continuation and an extension to new highs. This morning's economic data could certainly be a catalyst for that kind of move.
However, what happens if a market is poised to rally and fails to do so? If the S&P snaps Monday's breakout by offsetting Monday's 1527.25 S&P low, the picture could develop into a fractal of the July pattern, where the July 12 "breakout" was offset leading to a waterfall decline. So far, the important 1540 level of the June high is holding. However, a break below 1529, the level of the July 20 signal bar sell day, would put the bullish case in jeopardy.
In addition, many leading stocks show potential dangerous patterns of double or triple tops, or breakaway gaps, such as Garmin (GRMN), Wynn Resorts (WYNN), Las Vegas Sands (LVS), and and the FXI. Also, it will be important to watch the action of Goldman Sachs (GS) and Apple (AAPL), the Heart and Soul, the King and Queen of this Speculation Prom if they trip up. GS has tested its high while AAPL may have carved out an MA top at a possible important square out – 157. Consequently any down side momentum from here in the market should not be ignored, because Boo may be ready to drive over 55.
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