Blair Witch Market
"Our own crash research over the years and that of some of our technically oriented colleagues has shown a remarkable similarity between the two great American stock market crashes of this century, namely the crashes of 1929 and 1987. Both crashes were preceded by new all-time highs on the Dow and by record overvaluations. After those all-time highs, the market saw initial closing price declines of around 15% (1929) and 8%(1987). Both initial declines ended almost exactly 4 weeks later and rallied over the next 1-2 weeks. After that secondary rally, the declines began which led to the crashes. In both cases, the time from the all-time high to the secondary price high was exactly 38 calendar days. The convincing break of the lows between the all-time highs and the secondary highs occurred just after the 49th calendar day, and the greatest one day declines or crash days occurred on the 55th calendar days after the all-time highs.
History often repeats itself, but it is foolish to expect the next crash, whenever it happens, will follow the same script. Keep that in mind as you read the following. Let's put together the Puetz research and history of prior crashes we just reviewed. The current market saw a top on July 16 (closing) and July 19 (intra-day). If we add a month to that date, we would expect the bottom of the first decline to occur around August 16-19.If we add 38 calendar days to the top dates, we come up with August 23-26 as a potential secondary top. August 26 just happens to be the full moon one cycle away from the July 28, 1999 lunar eclipse, a time when the Puetz research shows us is a typical time for the secondary top prior to the beginning of the panic decline phase. If the break of the low between the primary and secondary tops occurs just after the 49th day after the all-time high, it would occur around September 3-6, and if the one day panic, crash day fell on the 55th day, it would occur around September 9-15. These dates fit in perfectly with Puetz' later research which showed the panic parts of crashes are completely encompassed within the time periods of February 4 through April 5 or September 3 through October 29.
The above history gives us reason to be watchful and attentive over the next few months. Again, we caution you that many consider it foolheardy to even discuss the possibility of a crash. The odds of a crash occurring at any given time in market history are almost infinitesimally small. But if we put together the market's historical overvaluation and the lessons we have learned from prior crashes, it gives us reason to be cautious over the next several weeks. "
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