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Is This 1987 All Over Again?
March 14, 2013 09:23 AM
HISTORY LESSONS WITH JEFF COOPER
Outta control but I’m tied up tight
Shock Of The Lightning
Even the intelligent investor is likely to need considerable will power to keep from following the crowd.
Dow Jones Industrial Average's
) 9-day winning streak is the longest since November 1996.
Yet the streak is a crawl more than a streak: with all hoopla around last Friday’s jobs report and Wednesday’s retail sales, the
(INDEXSP:.INX) is a mere 0.6% from last Thursday’s close.
More and more, this year reminds me of the pattern from the 25-year cycle from 1987 which had two long DJIA winning streaks: 13 days in January and 11 days in June.
Can anyone explain why, despite the record highs, day after day, the market seems to be running on fumes?
It may have something to do with institutions having deployed what they want for the time being and having no excuse for hitting the bid, at least not until quarter-end. They have no reason to chase right here and they have no reason to sell. So the market idles with everybody watching everybody else to see who blinks first.
Perhaps, individual stocks benefit from buying one day to the next but the popular indices at large only inch up because players are hedging by shorting the
) or the futures.
That said, it is important to remember that sometimes risk is just risk and can’t be hedged away.
Of course, like in 2000, it will be interesting to see if some of the boyz break rank and leave the party a week ahead of quarter-end. The top in 2000 came on March 24 when it looked like a continuation into quarter-end was in the bag.
The important thing to remember is that there is a difference between not fighting the trend and thinking that money will be made buying the market at the beginning of a 5th year of a rally that required a 130% advance to get retail back in.
The excesses continue to build and the charade continues: we are broke but nothing is really being done about it because life has become like “just-in-time inventory”. This is the age of short-termism and immediate gratification, or at least the illusion of gratification: never confuse unrealized gains with profits.
The truth is that many Americans got their net worth scorched in the dueling banjos of the real estate and market crash in 2008 and now insult is being added to injury as the cost of food and energy has smoked disposable income.
I fear what the social acrimony in the once great Middle Class will be on the next downturn.
Is this why Ben keeps the pedal to the metal?
And unless the bond vigilantes, who are MIA because they have been spanked for fighting City Hall, forcibly remove Ben’s foot from the gas, it’s likely to stayed glued there until his term is over on January 31, 2014. Funny how a crash has occurred to inaugurate the terms of both Fed Chairman Greenspan and Bernanke.
IF the market is a discounting mechanism, will it begin to discount that eventuality months prior to the beginning of 2014?
Yes, it’s looking more and more like 1987 when following a ramp up in the first quarter, a sharp decline played out in late April/early May, which was bought with both hands leading to a run for the roses into the end of August. “Both hands” were taken off in the crash, along with a few other body parts.
This April shapes up as interesting because it follows this ides of March quadruple witching options expiration which is 180 days/degrees from last September’s peak and 120 days/degrees from last November’s low. More importantly perhaps is that this April is also a very Gannish 49 months from the March 2009 low. Gann believed 7 was the number of panic and 7 squared (or 49) was what he referred to as a ‘Death Zone’. The human head is basically a 360-degree circle with 7 orifices, 2 eyes, 2 ears and 2 nostrils and at the 7th opening, the mouth, everything goes down.
April is also the 66th month from the October 2007 high. Will the 66th month vibrate off the 666 S&P price low in 2009? Interestingly, 66 ties to April 24. This is opposite the week of the crash in 1987 as October is opposite April.
Is it possible the market has a date with destiny in April?
Of course, markets rarely fall right out of bed as there is usually (not always) a primary high followed by a break and a return rally to test the highs.
That’s what happened in 2007.
Of course, the markets can do anything.
In 1987, they fell right out of bed.
I can’t help but wonder if, on the important 25-year cycle, they can fall right out of bed again and that we see the Rule of Alternation play out, where unlike in 2007, we don’t get the return rally to a test of whatever high may or may not be on the horizon.
The blow-off into the August 24 top in 1987 was around 90 days. The current impulse began at the turn of the year with the end of March mimicking that same 90 days.
So April warrants caution if we start to rollover.
It is worth noting also that one major factor in the crash in 1987 was currency wars, with then-Treasury Secretary Baker warning the Germans the weekend prior to the crash, “either inflate your mark or we’ll devalue the dollar.”
Either the option expiration arbs have the SPY locked at the 155 strike or the tape is waterlogged and there is just not enough left on the table.
While creeping action like we’re seeing sucks many market participants in and often ends with an up Spike & Reversal pattern, the contrary is that so many players are corralled by quarter-end considerations who are dying to take a profit that the first day down can be violent, erasing at least the prior week’s action.
So if you have to buy something, it may be better to wait until weekly lows are tested.
My work has been pointing to many major cycles in history due to exert downside influence by the end of the first quarter.
If we got past February, these cycles were pointing to 1547, 1584 or a peek above 1600.
However, the higher numbers may have to wait until after a first break which everyone will buy.
It is interesting that 1584 is a Master Square since it aligns with 666, being SEVEN squares up from the 666 low in 2009.
Click to enlarge
The Square of 9 Wheel above does a good job of timing the market and calculating turning points for indices and stocks. I am offering 2.5' square physical wheels along with a consultation where I teach users what I've learned from the single best market tool out there. If you are interested in purchasing one, email us at
As noted above, 7 is often the number of panic and April is the 7th squared month from the 2009 low.
No one knows what the catalyst will be or if there will be one to ignite profit taking or light the fuse on the cycles I expect to exert their influence.
However, I can’t help but wonder if dollar strength will be a market killer since the correlation between a declining dollar and rising equities has decoupled.
As flagged recently in this space, the dollar left an outside up month in February and is building on that upside reversal. The dollar is threatening to trigger a big picture Angular Rule of 4 Breakout on trade above a declining monthly 3-point trendline connecting the March 2009 top, the June 2010 top and the July 2012 top.
Click to enlarge
Note how the dollar was straight down in 2007 while the market was straight up, and vice versa in 2008.
Current strength in the dollar may be blowback from the first rounds triggered in Currency Wars and a beggar thy neighbor policy which is bound to backfire.
Editor's Note: This article is a free edition of
Jeff Cooper's Daily Market Report
. For a two-week FREE trial of his daily commentary and nightly day and swing trading picks,
No positions in stocks mentioned.
SQUARE OF 9
IS THIS 1987 ALL OVER AGAIN
1987 MARKET CRASH
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