CRASH ALERT UPDATE

J. Adams
July 13th, 2008
The Spirit Of Truth Page

The DJIA is briefly broke below the psychologically important 11,000 mark on Friday but closed above the benchmark:

As overviewed in my June "Stock Market Crash Alert", based upon Dow Theory, the Elliott Wave Principle and other forms of technical analysis, there is a high probability the a "Grand Supercycle" collapse in stock prices and mass mood is now underway that will ultimately outline the collapse of Western Civilization.

At the current juncture, there is the possibility that a full-scale global financial panic is developing that could result in a crash as soon as the coming week. However, I deem this to be a low probability with the greater likelihood being that a significant "dead cat bounce" is due for the stock market after which the crux of the "Grand Supercycle crash" should be expected to unfold....possibly in the "Fall" of this year.


- THE ELLIOTT WAVE COUNT -

According to the Wave Principle, the cyclical top reached in stock prices in October 2007 could have been a Grand Supercycle peak some 200 years in the making. In fact, there is even reason to believe the top reached was the peak of a Millenium Cycle, i.e., it signified the peak of Western Civilization. To better understand why this is so, please watch the following presentation I gave on Cambridge Community Television in 2000 and keep in mind that the peak ended up occurring in the Fall of 2007 instead of the Spring of 2000 as I had believed at the time (although the speculative peak as measured by the Nasdaq Composite did occur in the Spring of 2000):


As for the timing of the "Grand Supercycle Crash", the recent Elliott Wave patterns suggest this may be near.

According to the Elliott Wave Principle, the "third wave" down is the extended crash wave. Of particular concern will be the Elliott Wave "intermediate"-scale third wave down, which likely is already underway. In the chart below from my June article, "wave-(3)" is the intermediate-scale wave down and the likely crash wave. As can be seen, this wave down started after the May highs were reached around Dow 13,000:

However, wave-(3) down will most likely not occur in one full swoop. In particularly, it should consist of 5 minor waves like wave-(1) down with wave-3 of wave-(3) being the most dynamic part of the decline, i.e., the most likely point for the Grand Supercycle crash:

According to this Elliott Wave count, the stock market is due for a significant rebound, maybe back to Dow 12,000. After that rebound is over there will be a significant threat for a Grand Supercycle-scale crash.

- THE HISTORICAL PATTERN OF DOW THOUSAND MARK PSYCHOLOGICAL BARRIERS -

There is a chance that stock prices will fail to rebound here and the bottom is going to fall out. If so, a decisive drop below Dow 11,000 may kick off a full-fledged freefall.

As I've explained over and over and over and over and over and over again in prior articles, when the DJIA reverses from psychologically important thousand marks, negative historical events tend to follow.

Historically, when the major stock averages, and the DJIA in particularly, reach or trade around psychologically important round numbers like thousand marks, the stock market may top-out and, failing to hold near or above the mark, sharply reverse course. A remarkable feature of these stock market reversals at thousand marks in the DJIA is that they are often associated with negative news that follows the market top.

For instance, on September 6th of 2001, the DJIA fell decisively below the 10,000 mark , THEN September 11th occurred driving the market down sharply.

Thus, when the DJIA reversed decisively from 10,000 in September of 2001, the breakdown in Western confidence manifested as the literal collapse of a key symbol of Western financial prowess and American global economic hegemony....the World Trade Center towers in New York City. Likewise, a blow occurred against the Pentagon in Washington DC, the symbol of American global military hegemony.

There are other major examples of significant negative historical events erupting in conjunction with reversals from key thousand marks in the DJIA.

Right after the DJIA failed at Dow 8000 in late-October of 1997, a mini-crash occurred in association with a financial panic in Asia.


In 1997, the Dow reversed from the 7000 mark and the Fed raised interest rates for the first time since 1994 up to that point leading to a ten percent market correction.
Dow 7000 Chart

Likewise, when the Fed hiked interest rates in 1994 precipitating a year-long correction in the stock market, it occurred right after the Dow reversed from the 4000 mark in late-January of that year.

In the summer of 1990, the DJIA reversed from 3000 and THEN Iraq invaded Kuwait, thereby triggering a Persian Gulf crisis and major oil- shock that caused the world economy to slip into a recession and stock prices to plunge by 25 percent. Notably, the DJIA topped by closing two days in a row at exactly 2999.75 on July 16th and 17th of that year (did not close above 3000 until the following year).

Dow 3000 Chart

Finally, between 1966 and 1982, the DJIA reversed from the "Magic 1000" barrier several times. After each reversal, all kinds of troubles emerged ranging from OPEC oil embargoes, to the Vietnam War, to Watergate. One of the most notable cases occurred in October of 1973 when the DJIA rose to just below Dow 1000 as the Arabs launched a surprise attack against Israel which, in turn, led to a major East/West confrontation and an Arab oil embargo against the West. Consequently, the world economy entered a severe contraction and stock prices plunged in the largest market correction up to that time since the Great Depression.

Dow 1000 Chart


Given the historical pattern of major stock market reversals from key thousand marks in the DJIA, there is reason to believe that a reversal from Dow 11,000 might be associated with a major decline in stock prices possibly exacerbated by some sort of historical "shock(s)" like occurred with such breaks in the past.

- HINDENBURG OMEN CLUSTER -

Another reason to suspect a stock market crash is now developing is a confirmed "Hindenburg Omen" cluster in June like occurred before the July/August break in stock prices last summer that marked the beginning of the current financial crisis:

The Hindenburg Omen is a technical analysis signal that attempts to predict a forthcoming stock market crash . It is named after the Hindenburg disaster , the crash of the German zeppelin of the same name in May 1937. The Hindenburg Omen is the alignment of several technical factors that measure the underlying condition of the stock market - specifically the NYSE - such that the probability that a stock market crash occurs is higher than normal, and the probability of a severe decline is quite high. The rationale behind the indicator is that, under normal conditions, either a substantial number of stocks establish new annual highs or a large number set new lows - but not both. When both new highs and new lows are large, it indicates the stock market is undergoing a period of extreme divergence. Such divergence is not usually conducive to future rising prices. A healthy market requires some degree of internal uniformity, whether the direction of that uniformity is up or down. (Source: Wikipedia)

As explained by Robert McHugh in an article for Safe Haven, the record of the Hindenburg Omen in predicting major stock market drops is impressive:

If we define a crash as a 15% decline, of the 22 confirmed Hindenburg Omen signals, six (27.2 percent ) were followed by financial system threatening, life-as-we-know-it threatening stock market crashes. Three (13.6 percent) more were followed by stock market selling panics (10% to 14.9% declines). Three more (13.6 percent) resulted in sharp declines (8% to 9.9% drops). Five (22.7 percent) were followed by meaningful declines (5% to 7.9%), three (13.6 percent) saw mild declines (2.0%to 4.9%), and two were failures, with subsequent declines of 2.0% or less. Put another way, there is a greater than 25 percent probability that a stock market crash - the big one - will occur after we get a confirmed (more than one in a cluster) Hindenburg Omen. There is a 41 percent probability that at least a panic or crash sell-off will occur. There is a 54.5 percent probability that a sharp decline greater than 8.0 % will occur, and there is a 77.2 percent probability that a stock market decline of at least 5 percent will occur. Only one out of roughly 7.5 times will this signal fail .

Below is a table breaking down the record of this signal in predicting stock market declines:

Date of first
Hindenburg
Omen Signal		 # of Signals
In Cluster		 DJIA
Subsequent
% Decline		 Time Until
Decline
Bottomed
9/21/2005 5 ? ?
4/13/2004 (1) 5 5.4% 30 days
6/20/2002 5 15.8% 30 days
    23.9% 112 days
6/20/2001 2 25.5% 93 days
3/12/2001 4 11.4% 11 days
9/15/2000 9 12.4% 33 days
7/26/2000 3 9.0% 83 days
1/24/2000 6 34.2% 44 days
6/15/1999 2 6.7% 122 days
12/22/1998 (2) 2 0.2% 1 day
7/21/1998 (3) 1 19.7% 41 days
12/11/1997 11 5.8% 32 days
6/12/1996 3 8.8% 34 days
10/09/1995 6 1.7% 1 day
9/19/1994 7 8.2% 65 days
1/25/1994 14 9.6% 69 days
11/03/1993 3 2.1% 2 days
12/02/1991 9 3.5% 7 days
6/27/1990 17 16.3% 91 days
11/01/1989 36 5.0% 91 days
10/11/1989 2 10.0% 5 days
9/14/1987 5 38.2% 36 days
7/14/1986 9 3.6% 21 days


Of course, since the Hindenburg Omen cluster, the DJIA has plunged 1000 points, so the signal this time around may have already run its course.

- THE AUGUST 1ST TOTAL SOLAR ECLIPSE -

"...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. "

- Peter Eliades' online "Current Observations"

Strangely enough, a final reason to expect a major mass panic in the near-future is an upcoming solar eclipse.

There is a risk of a major panic in the days ahead based upon the work of Steven Puetz concerning eclipses.

Steve Puetz discovered that almost all of the largest stock market crashes in history have occurred around the time of a full moon before or after a solar eclipse, particularly when that full moon is a lunar eclipse .

Consider the following excerpt from Peter Eliades online "Current Observations":

We seldom use much newsletter space for the ideas of others, but the theories we are about to present fit together so well, we believe you will find them as interesting as we do. The two researchers are Steve Puetz (pronounced "pits") and Chris Carolan. Chris just won the 1998 Charles H. Dow Award for his original research and the complete article is offered on his website at http://www.calendarresearch.com/ . The research by Puetz was first noted in our October 10, 1995 newsletter. Here is what we wrote:

"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."

A total solar eclipse will take place on August 1st that will be followed by a lunar eclipse on August 16th. Puetz highlights the likely crash window as being from six days before to three days after a full moon that occurs within six weeks before or after a solar eclipse, particularly if this full moon is a lunar eclipse. This week's full moon (7/18) falls two weeks before the August 1st solar eclipse which means that a stock market crash window has opened that will close early next week. Are we about to enter a panic of some sort here?:

It's possible, but one should note, according to Puetz observation, the greater likelihood for a crash will be around the full moon/lunar eclipse on August 16th that follows the solar eclipse, i.e., between August 10th and August 19th. Furthermore, stock market seasonality is most conducive to panics in the "fall", i.e., September/October.

While the idea that the moon influences mass mood might seem like lunacy, it is nonetheless true. Consider, for instance, a University of Michigan Business School study by Ilia Dichev and Troy Janes. This study examined 100 years of the stock market trends as they relate to the lunar phases. According to it, “Returns in the 15 days around New Moon dates are about double the returns in the 15 days around full moon dates. This pattern of returns is pervasive: We find it for all major U.S stock indexes over the past 100 years and for nearly all major stock indexes of 24 other countries over the last 30 years.”

Spirit Of Truth Page Stock Market Update

"All that is needed for evil to triumph is for good men to do nothing." - Edmund Burke

"It is natural for man to indulge in the illusions of hope.
We are apt to shut our eyes against a painful truth,
and listen to the song of that siren
till she transforms us into beasts.
Is this the part of wise men,
engaged in a great and arduous struggle for liberty?
Are we disposed to be the number of those
who, having eyes, see not,
and having ears, hear not,
the things which so nearly concern their temporal salvation?
For my part, whatever anguish of spirit it may cost,
I am willing to know the whole truth;
to know the worst, and to provide for it."

- Patrick Henry