Snowball From Hell
By Jeffrey Cooper Oct 03, 2008 10:30 am
Panics tend to play out over a certain periodicity of 49 to 55 days.
The following is this morning's column from Jeff Cooper's Daily Market Report.. Get his insights daily with a FREE 14 day trial.
The purpose of showing the charts of the 1929 and 1987 crashes is not to alarm you. I am quite certain you are already alarmed, as I am. It is one thing to be bearish and anticipate a crisis, it is another to see it spiral out of control.
There are a few important messages in the charts from those two fateful years: The economic outcome and fallout after each was worlds apart. The '29 and '87 template were similar in as much each saw a crash following a blow off top after a long run. That is not the current pattern in as much as the current waterfall decline the market is trapped in began from a much lower high.
Be that as it may the pivot for the break in 1987 was the end of August. The pivot for the 1929 break was September 3rd. Both panics played out over 7 squared days (49 to 55 days) of 7 plus weeks.
The last pivot high for this market occurred on September 2nd. An eerie analogue. I think it is wise to respect the message of history and the notion that panics tend to play out over a certain periodicity of 49 to 55 days before being tempted to jump in because stocks look like they are down too far, because stocks look cheap. There is no such thing as fair value when someone big is trapped and forced to sell and they cannot wait. There is no such thing as fair value when hysteria is running rampant. No one knew how high, high was on the fertilizer stocks. They burned many shorts who thought they were fundamentally a good short. They singed so many, that I suspect that many if not most of those same traders put them on their 'restricted list' as to shorting. They had just been burned one too many times. Such is the emotional nature of the beast.
While on the surface there may be differences between the '29, '87 experiences and the current crash if one looks at the daily charts. The notion occurs to me that looking at the monthly or weekly chart of the S&P or DJIA that it may be a fractal of the daily charts from the prior two instances. The monthly chart shows the persistent run up and just as persistent a tumble off the top. The message of that notion is two fold: we need to carefully watch the period of 49 to 55 weeks from the October 2007 high. Of course 49 weeks from the October 2007 high was mid September when this snowball from hell accelerated. The 55th week will be the end of October early November. An interesting time to focus on indeed as it obviously coincides with the daily 49 to 55 day panic zone on the daily counting from the September 2nd pivot.
It is important to remember that the largest gainer in the market to that time occurred in the fist week of October 1987 prior to the crash. It is important to observe that in he middle of the 1929 experience that there was an hellacious rally of a few days.
Conclusion: I suspect that after the House approves a bailout bill that there may be a coordinated effort by central banks to inject rocket fuel (as one trading bro calls it) into the market. It's the last exit to Brooklyn---can they afford to let the market sag on the passage? I may be wrong of course but the point is if it happens I warn against buying into any carrot that they try to stick into this snowball and pass off a a friendly Frosty the Snowman. It is not. The daisy chain of systemic issues are vast. I for one don't believe that the markets are always a great forecaster of the economy. What did the markets know in October 2007 or was that that years version of a 'rescue plan' to prop up the market so that insiders could take capital gains right into the beginning of the new year, not to mention bonuses? What did the market know in August of 1929 as opposed to August 1987? It is entirely possible that the Great Depression was an effect of the way the aftermath of the crash was handled---the snowball was bobbled.
The dollar was not the whipping boy in the 1920's it has been this decade. Real estate was not crashing prior to 1929. There was leverage in stocks, but there were not the derivative dominoes that are plaguing us now. The global counter-party and systemic complexities that exist today dwarf those of the prior two experiences. There are many land mines to tiptoe around today and unfortunately the dog and pony pork show put on by Congress is not the kind of deft action that inspires confidence in leadership. We can only hope they get it before we get it.
Strategy: 1080 S&P is .618 of the 2002 to 2007 range. A tag of that level will carve out a three point trendline from the 2002 lows. Of course we may have already come close enough for government work, pun intended. We are NEAR the ideal place for a bounce. We may gap up Monday--next week being the anniversary of many historical turns such as the Oct. 2002 low, the Oct. 1990 low, the Oct 2007 high and the Oct 4th 1987 fake out blastoff.
Be that as it may short of a miracle today the DJIA is destined to close on the important weekly chart below the midpoint (10752) of the 2002/2007 range. Ditto the S&P (1172). That suggests a move back to point of origin.
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Reply
2008-10-03 10:50:15
miscellaneous crashes
Only a technician would compare the crash of 1929 to the crash of 1987 and find similarities for guidance.
After the crash of 1987,and the bounce, the Dow regained its former highs after only 2 years and then went on to higher and higher heights.
After the crash of 1929, and the bounce, the DOW continued downward, reaching an ultimate low of 41, another 83% below the crash bottom, and did not regain its highs until 1954, a full generation later.
Its entirely plausible, as some say, to consider that the DOW may NEVER see 14,000 again, and in fact the whole financial system endure
"change"...
After the crash of 1987,and the bounce, the Dow regained its former highs after only 2 years and then went on to higher and higher heights.
After the crash of 1929, and the bounce, the DOW continued downward, reaching an ultimate low of 41, another 83% below the crash bottom, and did not regain its highs until 1954, a full generation later.
Its entirely plausible, as some say, to consider that the DOW may NEVER see 14,000 again, and in fact the whole financial system endure
"change"...
2008-10-03 10:51:45
miscellaneous crashes
can somebody please summarize mr. coopers article in layman's terms.
thanks
thanks
2008-10-03 11:19:39
A few days ago, Mr. Bennet Sedacca mentioned the possibility of a crash in October.
2008-10-03 12:11:41
Debt and stocks = promises
What the charts show is the confidence of people that the future will be livin' larger than the present.
In 1929, they found out that there was a 'confidence game' going on, where brokers were deliberately selling promises that they knew were smoke. When they ran out of smoke and mirrors, the confidence of people crashed. The 'money' which people believed would come to them (price of stocks) had never existed, and so, the 'loss' was the loss of the base of a pyramid scheme. You can't build a new pyramid if the old one is in the way, so it all had to come down.
In 1987, there were some checks and balances to prevent the market from being COMPLETELY smoke, but that doesn't control what people BELIEVE it to be, regardless of the equity/price ratio. Lose belief, and the market can crash even if the companies selling stocks are worth more in physical plant than the stock price represents.
Today's market is an unbelievably derived house of debt cards with a petroleum-fired stove made of paper. Lose confidence in any part of it (oil peak, debt availability, paper money exchange value, government controls, freedom to add cards, stable climate, stable foreign policy), and it will explode into a firestorm.
The fear mongering is a show to distract us from the real danger. When George W. comes on TV to tell you things are bad, you can sure bet they are much, much worse. "Brother, Where You Bound?"
In 1929, they found out that there was a 'confidence game' going on, where brokers were deliberately selling promises that they knew were smoke. When they ran out of smoke and mirrors, the confidence of people crashed. The 'money' which people believed would come to them (price of stocks) had never existed, and so, the 'loss' was the loss of the base of a pyramid scheme. You can't build a new pyramid if the old one is in the way, so it all had to come down.
In 1987, there were some checks and balances to prevent the market from being COMPLETELY smoke, but that doesn't control what people BELIEVE it to be, regardless of the equity/price ratio. Lose belief, and the market can crash even if the companies selling stocks are worth more in physical plant than the stock price represents.
Today's market is an unbelievably derived house of debt cards with a petroleum-fired stove made of paper. Lose confidence in any part of it (oil peak, debt availability, paper money exchange value, government controls, freedom to add cards, stable climate, stable foreign policy), and it will explode into a firestorm.
The fear mongering is a show to distract us from the real danger. When George W. comes on TV to tell you things are bad, you can sure bet they are much, much worse. "Brother, Where You Bound?"
2008-10-03 12:23:00
Farm Land fell significantly prior to the 1929 crash
If I remember what my grandparents said, farm land prices crashed before the 1929 crash. Since that was much more of an agrarian economy then, I would suspect that hardship on the farm as commodity prices went down may have had something to do with it, and the crash was a final act reflective of what had happened in rural America.
To my knowledge in this crash has not had an ag land crash (yet), due largely to the international market dynamic that was not present in the 1920's. However, the boom-bust in commodities has been certainly rolling in this cycle. This was both demand and speculator driven. I would suggest that the chartists take a serious look at the interrelationship of commodity cycles in their search for relationships.
To my knowledge in this crash has not had an ag land crash (yet), due largely to the international market dynamic that was not present in the 1920's. However, the boom-bust in commodities has been certainly rolling in this cycle. This was both demand and speculator driven. I would suggest that the chartists take a serious look at the interrelationship of commodity cycles in their search for relationships.
2008-10-03 13:15:43
Farm Land fell significantly prior to the 1929 crash
Interestingly enough, while prices of homes and associated land crashes, farm land in middle America is going crazy. $1200/acre for dryland in middle of nowhere Kansas. You can't turn a profit at that price and the thought is people are taking a defensive posture should things really hit the fan - if you have land, you have food.
2008-10-03 15:20:27
Farm Land fell significantly prior to the 1929 crash
Maybe I'm reading to fast, but you mention that house prices are crashing. I would go further to point out that house prices are crashing before the market started heading down. What have I read on Minyanville a few times in the past 12 months, history doesn't repeat - but it often rhymes?
Hopefully the legislation that Congress passes these next few years in its attempt to "fix" this situation doesn't rhyme with the 1930s.
Hopefully the legislation that Congress passes these next few years in its attempt to "fix" this situation doesn't rhyme with the 1930s.
2008-10-03 17:15:46
down is down until it ain't
simple to remember
down is down until it ain't
and
up is up until it ain't
overshooting going up results in overshooting when going down.
just remember the trend is your friend - until it ain't
theories are for acedemics, charts are for traders
down is down until it ain't
and
up is up until it ain't
overshooting going up results in overshooting when going down.
just remember the trend is your friend - until it ain't
theories are for acedemics, charts are for traders
2008-10-03 20:50:56
Irrelavant comparisons to 1929 and 1987
Why does everyone compare October of 2008 to 1929 and 1987? The 2 time periods look nothing like today. Both the 1929 and 1987 crash were preceded by unprecedented increases in the market. 1987 had a run up from 1982 with almost no let up and 1929 had run for the entire 1920's. The fact that we experienced the downturn from 2000-2002 just 6 years ago coupled with the fact that we have gone down for 1 full year in the market makes a crash like 1987 and 1929 less likely and not more likely. Learn your history before your write.
2008-10-03 23:42:25
lower next week..
We may bounce , but every rally is met with selling. Next blowup we are going to 8100.
2008-10-04 06:51:03
Irrelavant comparisons to 1929 and 1987
It's a valid comparison, no two periods in history are exactly alike, altough, crashes do tend to run in cycles. Read Kondratiev, justice has been delayed, not denied.
2008-10-04 07:06:09
Payback
"We can only hope they get it before we get it."
Our getting it will insure that THEY get it. Can you say Mussolinied? Sure i knew you could, lol.
Our getting it will insure that THEY get it. Can you say Mussolinied? Sure i knew you could, lol.
2008-10-04 13:13:25
Florida housing bust
There was a huge housing bust in Florida in the mid 1920's which ended when....wait for it....a large hurricane killed thousands of people in 1925. It is well documented in "The Great Crash." The more things change.
2008-10-05 01:00:22
Irrelavant comparisons to 1929 and 1987
It has been said here on Minyanville - "History doesn't repeat exactly, but it does rhyme"...
Consider that after each large crash, the government intervenes (makes new rules) to try to prevent that precise event recurring...
The trouble is that the "price circumstances" that caused a major crash will likely never reappear and as usual, the government will miss the mark. They will always focus on the symptom rather than the disease, because lets face it, they are politicians not traders, economists, sane, intelligent or any of the things that would lead them to the correct conclusion... Panicked lemmings trying to please their lobby and fickle constituency... When an asteroid hits in AZ, they build a giant trampoline over the newly formed crater and are surprised when the next one hits in TX...
However, the general problems that cause bubbles (excessive fraud/credit/leverage) will certainly reoccur and have (in spades!)...
So, when you look to the market's past behavior remember that this behavior can compress/expand in time (that is the 5 stages of grief can take minutes, hours, days, weeks or years, but they are always there).
Remember also that government has installed speed bumps and tire barriers at the exact previous trouble spots. So, while they invariably miss the brick wall in the middle of the track we can all see, the obstacles they put up change the nature and course of the track prior to hitting the fatal wall...
As such, it won't likely ever look the same - but the human emotion behind it will likely echo. That's what people often seem to forget - TA is about human behavior not "numerology" or "astrology"... We have evolved little, if at all in the past hundred years - we are still human - except for Warren Buffet - he is something else entirely (that's not a compliment...)
Consider that after each large crash, the government intervenes (makes new rules) to try to prevent that precise event recurring...
The trouble is that the "price circumstances" that caused a major crash will likely never reappear and as usual, the government will miss the mark. They will always focus on the symptom rather than the disease, because lets face it, they are politicians not traders, economists, sane, intelligent or any of the things that would lead them to the correct conclusion... Panicked lemmings trying to please their lobby and fickle constituency... When an asteroid hits in AZ, they build a giant trampoline over the newly formed crater and are surprised when the next one hits in TX...
However, the general problems that cause bubbles (excessive fraud/credit/leverage) will certainly reoccur and have (in spades!)...
So, when you look to the market's past behavior remember that this behavior can compress/expand in time (that is the 5 stages of grief can take minutes, hours, days, weeks or years, but they are always there).
Remember also that government has installed speed bumps and tire barriers at the exact previous trouble spots. So, while they invariably miss the brick wall in the middle of the track we can all see, the obstacles they put up change the nature and course of the track prior to hitting the fatal wall...
As such, it won't likely ever look the same - but the human emotion behind it will likely echo. That's what people often seem to forget - TA is about human behavior not "numerology" or "astrology"... We have evolved little, if at all in the past hundred years - we are still human - except for Warren Buffet - he is something else entirely (that's not a compliment...)
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