Snowball From Hell
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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