Sunday, October 26, 2008

Stock Market Rally Near?

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Today is the 28th day of the 7th lunar month on the Hebrew calendar. This is the climactic "dark day" identified by Chris Carolan into which the October 1929 and October 1987 stock market crashes climaxed.

As mentioned in my Stock Market Crash Alert, this is also the "dark day" during which the U.S. and Russia came closest to nuclear war during the October 1962 Cuban Missile Crisis and the October 1973 Yom Kippur war as indicated by NORAD's DEFCON nuclear alert status. Fortunately, there has been no nuclear war thus far, and hopefully this is a long, long time off even if such a conflict is inevitable.

As for a stock market crash, this has occurred into this weekend, but there has not been any climactic "black" days in the U.S. during which the major indices have fallen 10%+ in a single trading session with massive volume....although such crash days have occurred on many foreign bourses. Certainly the U.S. stock market came close to such a selling climax into this weekend with the DJIA off 3.6% on Friday and 5.5% on Wednesday, but there's been no historic panic days as in 1929 and 1987. It's possible that there'll be a Black Monday, but at this point I think the higher probability is that we are at or near a significant low and a major rally is due on Wall Street.

Chris Carolan notes in his award-winning article, Autumn Panics: A Calendar Phenomenon, that, while the 27th and 28th days of the 7th lunar month experienced the black crash days in 1929 and 1987, the 29th and 30th days of the of the 7th lunar month in those years experienced huge rallies. Will this replay here? It's quite possible.

As Carolan points out in his most recent blog, the VIX (implied volatility) index, which measures stock traders' fear on Wall Street, reached a historic level of almost 90 at the open of trading on Friday.

This is a sufficient condition to believe a panic climax has been reached even if this was not reflected in a 10%+ single-day drop in stock prices. That this final spike in the VIX occurred at the end of a 25% drop in the stock market since late-September suggests a selling climax has been reached or is very near a conclusion into the 28th day of the 7th lunar month this year....consistent with the historical pattern.

Now what remains to be seen is if we get a substantial rally attempt in the wake of a panic climax.

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