STOCK MARKET CRASH ALERT

Are we facing the "Grand Supercycle Crash"?

J. Adams
September 11th, 2008
The Spirit Of Truth Page

"In individuals, insanity is rare, but in groups, parties, nations and epochs it is the rule."
(Nietzsche, 'Beyond Good and Evil')


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1. Introduction
2. Dow Theory Bear Market Signal
3. The Grand Supercycle Top
4. The Historical Pattern of Dow Thousand Mark Psychological Barriers
5. Autumn Panics
6. A Puetz Eclipse Crash Window Just Opened
7. Panic Climax In Late-October?
8. The Global Bipolar Disorder
9. Conclusion


- INTRODUCTION -

The DJIA is approaching the psychologically important 11,000 mark on the downside:

My warning for a stock market crash last fall based upon astroharmonics and seasonality was premature. In response to Federal Reserve efforts to rescue the stock market and economy from collapse by cutting interest rates, stock prices rebounded with the DJIA reaching a new all-time high above 14,000 in early-October of 2007. Since peaking at Dow 14,000, however, federal authorities have pretty much used up their magic bullets in combatting the onset of collective depression and a secular bear market has begun. In the wake of bailing out Bear Stearns in March and Fannie Mae and Freddie Mac in recent days, Uncle Sam has effectively doubled the national debt trying to stave off the inevitable bust from America's manic boom.

According to the Elliott Wave Principle, this may be a Grand Supercycle or even Millenium Cycle collapse now underway. My current wave count indicates that a reversal below Dow 11,000 in the near-future may be the beginning of a historic crash that could outline the collapse of Western Civilization.


- DOW THEORY BEAR MARKET SIGNAL -

Before getting into Elliott Wave specifics, let's first examine stock market patterns in the context of Dow Theory.

Unlike the first top at Dow 14,000 in July of 2007, the peak in the Dow Industrials last October was not confirmed by the Dow Transports and Utilities, something you'd expect to see at the final top according to Dow Theory. As can be seen below, the Utilities peaked late last year and the Transports had peaked last July:

On November 21st of last year, a Dow Theory primary bear market signal occurred when both the Dow Industrials and Dow Transports closed below the prior August 16th 2007 lows in the indices. The record of the Dow Theory is impressive. According to one statistical analysis, if you had bought and sold stocks based upon Dow Theory buy and sell signals from 1897 to the year 2000, you who have achieved a return ten times that of simply buying and holding during the same period.

One should note that on June 6th, the Dow Transports reached a new closing all-time high unconfirmed by the Industrials and Utilities and then turned sharply lower. This is a Dow Theory non-confirmation that buttresses the case that a secular bear market is underway.



- THE GRAND SUPERCYCLE TOP -

The scale of the bear market that might have been signalled by the Dow Theory sell signal in late-November of 2007 is suggested by the Elliott Wave Principle popularized by Robert Prechter and Elliott Wave International over the past three decades. If you are unfamiliar with the Wave Principle, there are excellent online tutorials to help you better understand it.

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):

If indeed a Grand Supercycle turning point in world history recently occurred, then the largest bear market in human history is now unfolding. If so, this implies the crash of Western Civilization has begun. That this historic reversal is now underway is suggested by the fact that the DJIA's drop below 12,000 entailed breaking below the lower trendline for the bull market in stocks underway since the '87 Crash:

Furthermore, the lower trendline from the 1982 low has been violated signifying the beginning of the Grand Supercycle bear market:

As for the "Grand Supercycle Crash", the recent Elliott Wave patterns suggest this may be imminent. Below is the image from the June post of my "Stock Market Crash Alert" article:

As can be seen above, the DJIA peaked above the psychologically important 14,000 mark in October, reached an intermediate wave-(1) low in March with the collapse of Bear Stearns and then a wave-(2) rebound to the 13,000 mark occurred into May.

Following the intermediate wave-(2) peak in May, a sharp drop occured to Dow 11,000 in July after which a minor wave-2 rebound occurred. This pattern is now completed and we appear to be entering wave-3 of wave-(3) down at the current juncture, i.e., the Grand Supercycle crash wave. Please note that I had earlier warned that the Grand Supercycle crash wave might unfold by the late-summer or fall:

July Update: According to my current Elliott Wave count we have started wave-iii of wave-1 of wave-(3) down. This indicates a sharp sell-off has started. While this might mean a full-scale crash in the immediate future, the greatest potential for a full-scale mass panic will occur with wave-iii of wave-3 of wave-(3) which should occur around the late-summer or fall.

My specific Elliott Wave count at the current juncture is indicated below:

If this wave count is correct, the stock market is now in minor wave-3 of intermediate wave-(3) down. Confirmation of this wave count would occur with a decisive drop in the DJIA below the wave-1 low at 11,000. If, indeed, the Grand Supercycle peak was reached in October 2007, a break below Dow 11,000 in the days ahead would imply that we have entered the Grand Supercycle crash. This implies the crash of Western Civilization in the coming weeks.


- THE HISTORICAL PATTERN OF DOW THOUSAND MARK PSYCHOLOGICAL BARRIERS -

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.


- AUTUMN PANICS -

Financial panics during the autumn are fairly common due to the seasonality of mass mood swings. As is widely recognized, the stock market has a tendency to fall during "the fall":

New York Stock Exchange: Worst Single-Day Declines
(Dow Jones Industrial Average, percentage change)


                               Percentage
Date                           Decline
__________________________________________
October 19, 1987                -22.6%
October 28, 1929                -12.8%
October 29, 1929                -11.7%
November 6, 1929                -9.9%
August 12, 1932                 -8.4%
October 26, 1987                -8.0%
July 21, 1933                   -7.84%
October 18, 1937                -7.75%
October 27, 1997                -7.16%
October 5, 1932                 -7.15%
September 24, 1931              -7.07%
    

As can be seen in the table above, nine of the eleven largest one day percentage declines in the DJIA occurred in October or just before and after that often black month. What's more, as Robert McHugh overviewed in a 2005 article, there tendency for major autumn selloffs to occur in the stock market has been particularly pronounced in recent history.

Is this pattern about to repeat? If so, we are now entering the period of greatest concern, but not only because the fall season is upon us.

Strangely enough, there are reasons to expect a major mass panic in the near-term because of a recent solar eclipse and lunar cycle phenomenon.


- A PUETZ ECLIPSE CRASH WINDOW JUST OPENED -

"...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"

There is a risk of a major panic in the near-term 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 within six weeks before or after a solar 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 occurred on August 1st that was 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. This month's full moon (9/15) falls six weeks after the August 1st solar eclipse which means that a stock market crash window just opened late last week that should close around September 18th. Are we about to enter a panic of some sort here?:

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.”


- PANIC CLIMAX IN LATE-OCTOBER? -

Lunar cycle parallels between the 1929 and 1987 October stock market crashes led Chris Carolan, who discovered the Spiral Calendar, to notice a very important seasonal characteristic of mass mood. There is a very specific tendency for collective panics to peak into the 27th and 28th day of the 7th lunar month of the lunar year. In his award-winning article, Autumn Panics: A Calendar Phenomenon, Carolan points out how the 1929 and 1987 stock market crashes, along with the 1997 Hong Kong stock market crash, climaxed into the 27th and 28th day of the 7th lunar month, with the "black" crash days occurring on those specific lunar calendar days:

He notes in his article that this pattern was the same with most other major financial panics in the 19th century, although some occurred into the 28th day of the 6th lunar month (which would suggest a selling climax of some sort into Friday, 9/26 this year).

As for 2008, the 28th day of the 7th lunar month will occur on Saturday, October 25th. Thus, if a mass panic soon begins, one might look for a climax in late October (or late September if the panic is limited to the 6th lunar month). Obviously, if this panic is constrained to financial markets, then a selling climax would be expected into Friday, October 24th or Monday, October 27th.

One should note that the tendency of mass panics to occur into late-October is not only constrained to financial markets. The most severe East-West nuclear confrontations as measured by the highest levels of nuclear alert in the U.S., i.e., NORAD's DEFCON status, were reached into the 28th day of the 7th lunar month during the October 1962 Cuban Missile Crisis and the October 1973 'Yom Kippur' Arab-Israeli War.

The Cuban Missile Crisis is remembered as Thirteen Days in October:

Those thirteen days, October 16th to 28th 1962, fit the lunar calendar in parallel with the 1929 and 1987 stock market crashes as well as the Yom Kippur War crisis in 1973. The Cuban Missile Crisis began soon after the full moon of the 7th lunar month, which occurred on October 13th of that year. The crisis reached its zenith when the U.S. nuclear alert was raised to DEFCON 2 on October 24th, the 27th day of the 7th lunar month that year.

Likewise, 1973 Yom Kippur War crisis unfolded in a seasonal pattern consistent with Carolan's autumn panics.

After Syria and Egypt launched a surprise attack on Israel on October 6th, 1973, the U.S. intervened on behalf of the Israelis and the Soviet Union intervened on behalf of the Arabs. The U.S.-Soviet confrontation started to take full form just before the October 12th full moon:

Oct. 11 - Israel attacks Syria from its positions on the Golan Heights. The Soviet Union's ambassador to the United States, Anatoly Dobrynin, tells U.S. Secretary of State Henry Kissinger that Soviet airborne forces are on the alert to defend Damascus. Kissinger warns Dobrynin that if the Soviets send troops to the Middle East, the United States would as well.

By late October, 13 days after the full moon, a full-scale East/West military confrontation was underway. This led the U.S. to go on high nuclear alert with the DEFCON status being raised to 3 on October 24th of that year, the second highest level of nuclear alert ever reached. Interestingly, October 24th of that year was the 28th day of the 7th lunar month.

Thus, we have a remarkable historical pattern of panic lows in mass mood occurring into the 28th day of the 7th lunar month. The panic low might take the form of a stock market selling climax, as occurred in 1929, 1987 and 1997....or it can take the form of a nuclear confrontation between East and West, as occurred with the 1962 Cuban Missile Crisis and the 1973 Yom Kippur War. If this pattern were to repeat this year, then a major mass panic in the form of a financial crisis and/or international geopolitical crisis, could soon take shape. One cannot discount the possibility, given that this time around we are potentially dealing with a Grand Supercycle crash, that America will reach DEFCON 1 status as I have forseen will eventually occur:


- THE GLOBAL BIPOLAR DISORDER -

Importantly, the seasonal connection in mass mood swings to East-West military confrontations is consistent with my Global Bipolar Hypothesis. Whether or not this hypothesis realistically explains and predicts the behavior of man as a species, i.e., human history, may be a very prescient issue.

Swings between prosperity and depression in global society, reflected as swings between mass optimism and pessimism in financial markets, e.g., bull and bear markets on Wall Street, are fundamentally symptomatic of man's manic-depressive nature. Analogous to bipolar mental patients, these swings involve the rising dominance of the left hemisphere of the brain, i.e., of the Western hemisphere of the world, during upswings. During downswings, activity in the left hemisphere collapses and the right side of the global brain, i.e., the Eastern hemisphere, becomes dominant. Such hemispheric switching occurs in bipolar psychiatric patients, even to the point of causing shifts between right-handedness and left-handedness with swings between mania and depression.

One should note that this analogy between man as an individual and man as a species is quite insightful given the characteristics of the bipolar hemispheres: the left side (the West) is characterized by positive mood, individuality and self-interested, analytical thinking while the right side (the East) is characterized by darker mood and collective, holistic thinking....hence the Capitalist West versus Communist East global bipolar imbalance.

Following an Elliott Wave Supercycle peak of man's creative mania into 1929, the subsequent cyclical collapse in mass mood involved the October '29 stock market crash, the Great Depression and the relative rise of totalitarian/collectivist powers in the East, i.e., Hitler's Germany, Mussolini's Italy, Tojo's Japan and Stalin's Russia, via the second world war. Relative Eastern dominance peaked into the early-1940s when Hitler had overrun continental Europe and the Axis powers were at their zenith of power. After that low a new Supercycle upswing in mass mood got underway involving the rise of American economic and military global supremacy. Over the last twenty years, with the seeming collapse of the Soviet Union, the dominance of the West reached a new historical extreme constituting the Grand Supercycle top identified above.

At the current juncture, following a double-top in collective mood (2000 and 2007), we are in midst of a new collapse and associated fall of the West and rise of the East. Note that the Beijing Olympics and a resurgent strong Russia - via the recent invasion of Georgia, etc. - have come as the most recent downswing has begun.

If, indeed, this is the Grand Supercycle crash that is getting underway, then the West's demise is likely not going to be limited to a financial panic and Wall Street's undoing. All of human history is part of man's creative thought process....whether those thoughts be positive or negative. Fundamentally, all there is is what we think - a point made increasingly clear from discoveries in quantum physics. Accordingly, seemingly exogenous historical events may soon develop associated with the collapse of the West and relative rise of the East, i.e., war:

That a collapse of the West in the form of a third world war might occur into late-October is consistent with the seasonality of mood swings in individuals suffering from bipolar disorder. Typically the Spring and/or Fall are the most likely time for boughts of panic and major depression. Indeed, the suicide rate peaks in May and October. The parallel between mood swings in bipolar patients and the mood swings of Wall Street and society at-large is striking and telltale:

Obviously this case is further buttressed by the evidence presented above regarding the propensity for autumn panics on Wall Street. Furthermore, one might note how the holiday of Halloween reflects the seasonal negative mood that peaks into late-October.

The bottom line is that man as a species is insane and a danger to itself and the world it inhabits. If there are international developments suggesting an East-West war in the days and weeks ahead, there is significant danger man's bipolar disorder might lead to a collective suicide attempt in the form of a global nuclear war this autumn.


- CONCLUSION -

Since we are now entering a possible worldwide panic and global collapse of stock markets, the question is why? If, indeed, a new large-scale decline in U.S. stock prices is getting underway, particularly one of Grand Supercycle- or even Millenial Cycle-scale, then what sort of events might cause an upset of investors' expectations and cause Western Civilization to collapse?

Most are currently focused on the unraveling of the massive debt bubble that has been caused by the reckless greed of consumers, investors and banks that was unchecked because of irresponsible government and Federal Reserve policies in recent years and decades (misled by insanely mistaken reigning theories about markets and the economy). The stock market, driven to an irrational extreme of optimism by unrestrained greed fed by hedge funds and an ocean of financial derivatives, which Warren Buffet has labelled "financial weapons of mass destruction", may now crash as it reflects a debt-deflation implosion in the economy that astute thinkers like Robert Prechter have been warning about for years. (Also see the recently updated Pictures of a Stock Market Mania and the constantly updated Prudent Bear Fund web site. An excellent blog on the emerging economic collapse is Market Ticker, updated daily by Karl Denninger).

Beyond the potential for financial and economic collapse, however, what Prechter and other such long-wave theorists fail to recognize is that the social wave patterns they analyze are not constrained to financial and economic events. Rather, such historical wave patterns involve ALL of human history such that reversals and large-scale downtrends manifest as large-scale negative historical events (like 9/11) collectively experienced as mass mood collapses. Accordingly, a reversal below Dow 11,000 at the current juncture may be connected to negative historical shock(s) outside of financial markets and the economy.

In the summer of 1990, after the DJIA reversed from 3,000, Saddam Hussein invaded Kuwait precipitating an oil-shock and a chapter of conflict in the Persian Gulf that continues to this day.

In September 2001, after the DJIA reversed from 10,000, the terrorist attacks of 9/11 occurred triggering the War On Terror that continues to this day.

My primary concern is that a reversal below Dow 11,000 into the Grand Supercycle crash could manifest as a new chapter of war for America. I continue to believe we are ultimately facing a global nuclear war starting in the Middle East as I foresaw back in February of 1991. It's possible that the world is on the verge of such a conflict given the emerging confrontation with Russia over flashpoints like Georgia. The bottom line is that, if the stock market takes a turn for the worse and an international crisis erupts in the coming weeks suggestive of an East-West nuclear confrontation, then one should presume that a global nuclear war by the U.S. presidential election is significant and take precautionary measures accordingly, e.g., prepare to evacuate or shelter in place (PDF). I might also suggest one get right with God.


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