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Strategies & Market Trends : MARKET INDEX TECHNICAL ANALYSIS - MITA

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To: J.T. who wrote (660)	9/19/1999 2:51:00 PM
From: current trend	Read Replies (1) of 19219

Stock Market Crashes in the Midst of Prosperity Stock Market Bubbles Some Historical Perspective albany.edu Four of the ten completed new high bull markets in Table 20.1 ended as a result of stock market crashes in the midst of prosperity. All of these crashes (the debacles of 1962, 1966, 1984 and 1987) were preceded by at least one new high, peak-to-peak gain of nine percent or more for the S&P index in column 3 of Table 20.1. This is the only characteristic of new high bull markets terminated by bear markets in the midst of prosperity (that we have discovered) that is not widely shared by the six (completed) new high bull markets which were terminated by recessions. The implication would seem to be that crashes in the midst of prosperity can be explained, at least in part, by "excessive" optimism or speculative enthusiasm. In the post World War II period there have been only eleven new high peak to peak gains in column (3) of Table 20.1 amounting to nine percent or more. Seven of these bubbles "broke" during quarters when the annualized growth of real GDP in 1987 dollars was over five percent or during quarters when the four quarter growth rate for real GDP was in excess of five percent. Two of these cases occurred in 1987, before the October crash, when the economic growth rate had slowed to a more normal pace and the stock market was still imbued with a tremendous amount speculative enthusiasm. The largest bubble of all broke during the fourth quarter of 1995 after real GDP for the third quarter expressed in chain weighted dollars had increased at an annualized rate of 3.6 after increases of only .6 and .5 percent for the first two quarters. It should be noted, however, that only one of these large new high bubbles, the 11.5 percent increase in stock prices from June 15, 1987 to August 25, was followed by a crash. The other nine bubbles only experienced minor corrections or declines ranging from a loss of 3.1 percent for the 1964 bubble to a loss of 6.9 percent for the 1983 bubble.

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