Tuesday, February 05, 2008

The Decadal 6-7-8 Crash

There is a long-term repeating pattern in the U.S. stock market that nobody seems to talk about. The market always experiences a bear market or a crash (19% or more) once every decade, in either the 6th, 7th, or 8th year of the decade. This seems to happen regardless of the condition of the economy or the P/E ratios of stocks.

Here's how the cycle has played out so far:
  • 1937-8: 49% bear market
  • 1946:... 22% crash June-Oct.
  • 1956-7: 22% bear market
  • 1966:... 22% crash Feb.-Oct.
  • 1976-8: 27% bear market (Dow)
  • 1987:... 35% crash Aug.-Oct.
  • 1998:... 19% correction July-Oct.
The 1976-8 bear market followed the -45% bear market in 1973-4, and the 1937-8 bear market followed the -89% bear market in 1929-32, so the 2000-2002 bear market (roughly -40%) has not immunized us against another large loss.

Until October of 2007, this decade had yet to experience the big 6-7-8 bear/crash:
  • 2006: Up 11% for the year, 8% correction in June
  • 2007: Up 4% for the year, 9% correction in August
Right now we're still only 12% off of the October '07 high, so if this is the first part of the 19%-49% drop predicted by the 10-year cycle, then the market is poised to fall at least as far as S&P 1270. (Dow 11500) Of course the market can fall much further than 19%, and I'm predicting a bottom of Dow 8500/ S&P 940.

1 comment:

Cathy said...

That is absolutely fascinating.