Wednesday, October 09, 2013

Mass Mood Seasonality Revisited: Crash Into Halloween?

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On August 28th I posted a blog about how the world would soon be entering a dangerous period, i.e., the autumn, based upon the seasonality of mass mood swings. I'd like to revisit the information presented in that blog with some updated information that suggests the world is not out of the woods yet with regard to the potential for a global panic in the days and weeks ahead.

As I noted in August:

My work is drawn from an award-winning 1998 article written by Chris Carolan, Autumn Panics: A Calendar Phenomenon, which points out the tendency for financial panics to climax into the 28th day of the 7th month on the annual lunar calendar:

I took Carolan's discovery a step further utilizing the lunar-based Hebrew calendar. What I found is the tendency is for mass panics to develop in between the full moon and new moon in the second half of the 7th month on the lunar calendar which is generally equivalent to the period between Tishrei 15 and Tishrei 30 on the Hebrew calendar (usually late-October on the Gregorian calendar). During this Hebrew calendar window, the following major "panics" took place:

13 October 1857 = Panic of 1857 = 25th of Tishrei, 5618

24 September 1869 = Black Friday in 1869 = 19th of Tishrei, 5630

29 October 1929 = 1929 Stock Market Crash = 25th of Tishrei, 5690

26 October 1962 = Cuban Missile Crisis = 28th of Tishrei, 5723

24 October 1973 = Yom Kippur Arab/Israeli War = 28th of Tishrei, 5734

19 October 1987 = 1987 Black Monday Crash = 26th of Tishrei, 5748

13 October 1989 = 1989 Friday the 13th Crash = 14th of Tishrei, 5750

27 October 1997 = 1997 Asian Financial Crisis = 26th of Tishrei, 5758

24 October 2008 = 2008 Financial Crisis = 25th of Tishrei, 5769

Note that I've included in the list above the October 1962 Cuban Missile Crisis and October 1973 Arab/Israeli Yom Kippur War since, while not reflected in major stock market crashes, these historical crises were still effectively mass panics. This was signified on both occasions by the fact that the highest DEFCON nuclear alerts ever were reached during these crises, actually peaking right into the same time frame of the 7th lunar month as when the stock market crashes in 1929 and 1987 climaxed.

In 2013, Tishrei 25-26 on the Hebrew calendar will fall on September 29-30 on the Gregorian calendar. Thus, we are now entering the period when mass panics tend to kick-off according to mass mood seasonality. If a mass panic develops, it may climax into late-September as the historical pattern suggests. The period of greatest danger, i.e., when an epic "crash" (upset of collective beliefs and expecations) could occur in the form of a surprise nuclear third world war, should be after the full moon in September going into the new moon in October between 9/19 and 10/4.

Fortunately, September passed without incident and the crisis in Syria which climaxed that month dissipated without World War Three erupting.

Since that time, however, a new crisis has started to emerge that may portend a panic of the financial sort, i.e., the political impasse in Washington, D.C. and U.S. government shutdown. Something that could lead to a ratings downgrade of the U.S. and/or worse. In recent days, global concerns over the political wrangling in America has started impacting global financial markets sending the DJIA back below the psychologically important 15000 mark:

Could my August projection for an autumn panic been short by a lunar month? I hope and pray not, but there's reason to believe this is a possibility. As noted in the excerpt above, I utilize the Hebrew calendar in order to keep track of the lunar year instead of using the Gregorian calendar solar year (because autumn panics line up according to the lunar calendar). Thus, the "autumn" panic usually occurs into the 8th new moon of the year (the 7/27 - 7/28 "Dark Days" identified by Chris Carolan). As it turns out, this year the Hebrew calendar is running about a lunar month early, something that happens once every few thousand years:

First, the reader must understand that the Hebrew calendar is lunar as opposed to our societal Gregorian calendar that is solar.

Our solar calendar is 365.25 days in length. The lunar calendar is approximately 354 days in length. In order to almost even out the lunar and solar years, Jews add seven leap years in every 19 years. In each of those leap years, a month of 29 or 30 days is added to the calendar.

Unfortunately, the leap years do not totally equalize the calendars. There is a slow drift going on in the Jewish calendar. Let me quote BZ to explain the problem:

"235 lunar months add up to 6,939 days 16 hours 595 parts. (In Jewish calendar math, "parts" are the basic subdivisions of an hour, instead of minutes and seconds. There are 1,080 parts in an hour, so 595 parts is about 33 minutes.) In the Gregorian calendar, 19 solar years (on average) are 6,939 days 14 hours 626 parts. That's about a 2-hour difference. So the Jewish holidays (on average) shift about 2 hours later during each 19-year cycle, which adds up to a full day every 231 years."

For those of you still reading, you can see that the lunar calendar is drifting. BZ explains:

"However, because of the aforementioned calendar drift, this is true only locally, for the present couple of centuries. The earliest Rosh Hashanah used to be Sept. 4 (which means Purim on Feb. 23, and so on for the rest of the holidays), but that happened for the last time in 1766. The last Sept. 5 Rosh Hashanah (until we loop all the way around, of course) will be in 2089; after that, the earliest will be Sept. 6."

Given this rare occurrence of an early Jewish new year, what does this mean for the autumnal panic-prone period in 2013?

Well, as I explained in my August blog, the key time frame when "mass panics" typically occur is between the full moon in the middle of the 7th lunar month and new moon at month's end which, if pushed out by a month on the Hebrew calendar (to the month of Cheshvan), equates to October 19th to November 3rd on the Gregorian calendar in 2013. Of course, this is the period when the 1929 and 1987 stock market crashes climaxed. Specifically, Chris Carolan's 7/27-7/28 "Dark Days" will align with October 31st-November 1st. (Note the fitting holiday of Halloween at the end of October signifying mass horror.)

Buttressing the case to be made that we are now entering a panic period is the behavior of the VIX index, which is a gauge of collective investor anxiety. The VIX has surged in recent days and, as it turns out, this seasonal movement of the "fear index" has been strongly recurrent in the autumn period ever since the measurement was invented:

The VIX seasonality chart is created from averaging together 23 years of VIX behavior. But since the VIX is at a different price level every year, using an average of the VIX’s actual values would inappropriately skew the result by over-weighting the years when it was at a higher level and vice versa.

To equally weigh every year, the price history is adjusted (using a divisor) to begin at the same level on the first trading day of every year. Then each day's values for the rest of the year reflect the percentage change from that first day of the year.

The chart below shows VIX seasonality compared to this year’s VIX performance:

As can be seen above, the propensity for autumn panics is particularly revealed by a seasonal chart of the VIX "fear" index, and now the index is starting to pop up, potentially foreshadowing a major wave of mass anxiety to come in the days and weeks ahead.

As if this all weren't enough to send a shiver up one's spine, there's one more ingredient worth consideration.

We are now entering a "Puetz eclipse crash window" often mentioned in this blog. Though not very reliable given the frequency of solar eclipses, I think it's important to note that the current period does match the criteria given a lunar eclipse with the full moon on October 19th and solar eclipse with the new moon on November 3rd:

"Puetz attempted to discover if eclipses and market crashes were somehow connected. Without discussing our own opinion on the potential connection between astronomical configurations and market timing, let's simply relate to you the basic findings discussed by Puetz. He emphasized that he is not contending that full moons close to solar eclipses cause market crashes. But he does conclude that a full moon in general and a lunar (eclipse) full moon close to solar eclipses, in particular, seem to be the triggering device that allows for the rapid transformation of investor psychology from manic greed to paranoia. He asks what the odds are that eight of the greatest market crashes in history would accidentally fall within a time period of six days before to three days after a full moon that occurred within six weeks of a solar eclipse? His answer is that for all eight crashes to accidentally fall within the required intervals would be .23 raised to the eighth power less than one chance in 127,000."

". . .Puetz) used eight previous crashes in various markets from the Holland Tulip Mania in 1637 through the Tokyo crash in 1990. He noted that market crashes tend to be lumped near the full moons that are also lunar eclipses. In fact, he states, the greatest number of crashes start after the first full moon after a solar eclipse when that full moon is also a lunar eclipse . . Once the panic starts, Puetz notes, it generally lasts from two to four weeks. The tendency has been for the markets to peak a few days ahead of the full moon, move flat to slightly lower --waiting for the full moon to pass. Then on the day of the full moon or slightly after, the brunt of the crash hits the marketplace."

Notably, The 1929 stock market crash occurred with a Puetz crash window around a solar eclipse on November 1st of that year and the 1987 panic occurred in connection with a solar eclipse on September 23rd and lunar eclipse on October 7th in that year.

So what about this year?

Given the lunar eclipse on October 19th, the Puetz window runs from October 13th through October 22nd, but again the crash window really runs to just before the subsequent new moon which is the solar eclipse on November 3rd this year.


Again, let's hope and pray I'm wrong as usual. History does tend to repeat itself.

1 comment:

qichengm said...

Dear John,
Since Treasury default is avoided, Do you still expect DOW crash? Thanks!

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