2007: US BEAR MARKET?

2007: US BEAR MARKET?

David McMinn

Moon – Sun Finance

Probably the most influential stock market cycle during the 20^th century was the well known decennial cycle. Under this scenario, the US market bottoms in a year ended in ‘2’ and then progressively rises to a peak in a year ended in a ‘6’ or ‘7’ and experiences a crisis and slump. The market rises to another peak in a 9 or 0 ended year, followed by another market collapse. During the 2000’s, the market has been following the decennial cycle according to plan. It hit a bear market low in October 2002 and had been rising ever since. This is what one would expect from the decennial cycle. In May 2006 and February 2007 the US market experienced tremors but no major crises.

The decennial cycle can be used effectively for stock market speculating. According to R W Miller of Triple Screen Trading, “if one were out of the market at the beginning of the ‘0’ year, entered the S&P 500 on June 30 of the ‘2’ year, then were out from August through October of the ‘7’ year, and finally re-entered until the end of the ‘9’ year, the value of $1 invested in 1900 would be worth $6,660.86 in 2002 versus just $148.41 were you instead fully invested over the entire period of time. An awareness of the 10-year cycle would have produced 44.9 times the return”. An investor obviously would have done very well over the long term, by playing the market according to the decennial cycle. Why there is a decline in a 7 ended year remains enigmatic, but it probably has something to do with Moon – Sun cycles.

Despite the statistical evidence to support the decennial cycle, many sources dismiss it as coincidence. This is the most common response to anything researchers cannot explain, even though the results may look convincing. Coincidence is one of the most abused words in both economics and the sciences.

Please note: The annual one day (AOD) fall is the biggest % one day fall in the year beginning March 1. The index used was the Dow Jones Industrial Average (DJIA) since 1896 and the 12 Stock Average between 1885 and 1896. The time assessed was 12 noon Eastern Standard Time on the day of the AOD fall, with no adjustment being made for daylight saving. E^o is the abbreviation used to denote degrees on the ecliptical circle, where as A^o is used for the angular degrees between the Moon and Sun (lunar phase). A glossary is available for those not familiar with the terms used in this assessment.

7 Market Lows

From Table 1, the US stock market clearly peaks in years ended in 6 or 7 followed by a major collapse in the stock market. This decline is usually severe (over 20%), but there have been a few years when the fall is quite weak (1927 & 1997). Significant DJIA market lows were usually recorded in the 5.5 months beginning October 20 of those years ended in 7. Of the 12 market lows, only two did not follow this rule – October 1966 and June 1949. Even so, there was a 1947 correction within the 5/1946 - 6/1949 bear market:

DJIA High	DJIA Low	% Decline
Jul 24, 1947	Mar 16, 1948	-11.5%

The 1966 bear market bottom happened a year earlier than expected in October. However, there was a -12.5% correction within the 10/1966 - 12/1968 recovery:

DJIA High	DJIA Low	% Decline
Sep 25, 1967	Mar 21, 1968	-12.5%

Table 1 BEAR MARKETS IN 7 ENDED YEARS
7 Ended Yrs	DJIA High	DJIA Low	% Decline	Market
1887	Dec 03, 1886	Apr 02, 1888	-20.1	BM
1897	Sept 10, 1897	Mar 25, 1898	-24.6	BM
1907	Jan 19, 1906	Nov 15, 1907	-48.5	BM
1917	Nov 21, 1916	Dec 19, 1917	-40.1	BM
1927	Oct 03, 1927	Oct 22, 1927	-10.2	CM
1937	Mar 10, 1937	Mar 31, 1938	-49.1	BM
1947	May 29, 1946	Jun 13, 1949	-24.0	BM
1957	Apr 06, 1956	Oct 22, 1957	-19.4	CM
1967	Feb 09, 1966	Oct 07, 1966	-25.2	BM
1977	Sep 21, 1976	Feb 28, 1978	-26.9	BM
1987	Aug 25, 1987	Dec 04, 1987(a)	-35.1	BM
1997	Aug 06, 1997	Nov 12, 1997(a)	-13.2	CM
2007	Oct 09, 2007	????	????	????
(a) The actual low occurred on the day of the panic, but the date given was the low after this event. Abbrevs: BM: Bear market fall >20%; CM: Correction market fall >10%<20%.

If the peak occurred in a 7 ended year, then it was most likely to happen in the 2.1 months beginning August 6 (1897, 1927, 1987, 1997 & 2007), the exception being the March 10, 1937 high. In 2007, the DJIA record high happened on October 9, with a correction market being recorded on November 27. How low this market will go remains to be seen. A bear market may or may not be recorded.

The 7 Autumn Jinx

For years ended in 7, DJIA AOD falls were most likely to occur in the two months beginning September 15 (see Table 2). Of the total 10 AOD falls (=>2.20%), 8 happened in this two month inteval, where as 1.7 would be expected by chance. The two exceptions were March 14, 1907 (a major banking panic happened on October 22, 1907) and April 14, 1947. (NB: The double AOD falls in 1887, 1897 & 1917 were treated as one event in each case.) No major autumn AOD fall was recorded in 2007.

Table 2 AOD FALLS IN YEARS ENDED IN 7
1887	September 19 (-2.24%) & October 12 (-2.29%) (a).
1897	September 21 (-3.95%) & October 12 (-3.90%) (a).
1907	March 14 (-8.29%). Major banking panic October 22.
1917	November 01 (-4.16%) & November 08 (-4.21%) (a).
1927	October 08 (-3.65%).
1937	October 18 (-7.75%). Panic & depression.
1947	April 14 (-2.95%).
1957	October 21 (-2.48%). Credit crunch.
1967	No AOD fall =>2.20% recorded.
1977	No AOD fall =>2.20% recorded.
1987	October 19 (-22.61%). Black Monday.
1997	October 27 (-7.18%). Blue Monday.
2007	No autumn AOD fall recorded.
(a) In the years 1887, 1897 & 1917, two days had almost equal % declines and thus both AOD falls have been presented in each case.

Why the market tends to experience an AOD fall in the autumn of 7 ended years remains enigmatic but it defies ‘coincidence’. Something similar could not be repeated for years ended in 9.

Lunar Phase

For the October AOD falls and the 1907 panic given in Table 2, lunar phase was always a few days prior to a new Moon (300 – 340 A^o) or around a full Moon (150 – 205 A^o) - N0 EXCEPTIONS. This finding was applicable to another listing of October panics and AOD falls (see Appendix 1). Angles between apogee and the north node also closely approximated to the 3^rd harmonic angles of 000, 120 and 240 A^o - to within 6^o. This is either highly significant or an artifact of Moon - Sun tidal resonance (David McMinn).

October AOD falls & Panic	Sun E^o	Moon E^o	Phase A^o	Apogee E^o	NN E^o	Ap-NN A^o
Oct 12, 1887	199	140	301	017	136	241
Oct 12, 1897	200	042	202	064	302	122
Oct 22, 1907	208	044	196	112	108	004
Oct 08, 1927	194	344	150	204	082	122
Oct 18, 1937	205	009	164	252	248	004
Oct 21, 1957	208	187	339	347	221	126
Oct 19, 1987	206	170	324	127	001	126
Oct 27, 1997	214	174	320	175	167	008

If a major one day decline occurs in October 2007, it would most probably occur on Monday October 8 (a few days prior to a new Moon) or around Thursday October 25 (near the full Moon). For the former date, October 7 aligns more precisely with historic October panics, but this is a Sunday (non trading day).

US Market Collapse

For the market in the current year, a 10% DJIA correction market was registered between the record high on October 9 and the closing value on November 27. How low the US stock market will decline remains to be seen, but the situation is serious and a full fledge bear market could be experienced. Only time will tell.

Appendix 1

October Panics & Lunar Phase

October panics always occurred a few days prior to a new Moon and around the full Moon. This has been a consistent trend over the past 200 years.

6 major US & British October panics were listed by Kindleberger (Appendix B, 1996).

October 25, 1799	British panic
October 23, 1847	British panic
October 14, 1857	US & British panics
October 22, 1907	US banking panic
October 29, 1929	US Black Tuesday
October 19, 1987	US Black Monday

Since 1896, there have been 10 DJIA AOD falls (=>3.60%) that took place in October. (NB: The annual one day (AOD) fall is the greatest % one day decline in the year commencing March 1.)

DJIA AOD Fall	% Fall
October 12, 1897(a)	-3.95
October 19, 1903(b)	-4.17
October 8, 1927	-3.65
October 28, 1929	-12.83
October 18, 1937	-7.75
October 19, 1987	-22.61
October 13, 1989	-6.91
October 27, 1997	-7.18
(a) Two AOD falls of almost equal declines were recorded in 1897. The September 21 fall (-3.90%) fall was not included. (b) Another almost equal decline was evident on August 19, 1903 (-4.07%), but it was not included as it was outside October.

Combining these two lists gives 12 events, all of which have lunar phase between:

* 150 & 205 A^o, 1847, 1897, 1907, 1927, 1937, 1989. Around the full Moon.

* 315 & 350 A^o, 1799, 1857, 1903, 1929, 1987, 1997. Prior to a new Moon.

No exceptions. Remarkably, 8 of the 12 panics happened in 7 ended years, where as 1.2 could have been expected by chance. All 12 years occurred in years ended in odd numbers - 3, 7, 9.

October Panic	Sun E^o	Moon E^o	Phase A^o
Oct 25, 1799	212	167	315
Oct 23, 1847	210	023	173
Oct 14, 1857	201	165	324
Oct 12, 1897	200	042	202
Oct 19, 1903	205	193	348
Oct 22, 1907	208	044	196
Oct 08, 1927	194	344	150
Oct 29, 1929	216	182	326
Oct 18, 1937	205	009	164
Oct 19, 1987	206	170	324
Oct 13, 1989	200	004	164
Oct 27, 1997	214	174	320

The biggest one day falls (=>3.60%) in the month of October were also considered, in addition to the DJIA AOD falls noted previously. This gave a small listing of only five extra dates in the early 1930’s and 2000, two of which did not fall in the segments 150 - 205 A^o and 315 - 350 A^o. The anomalies happened in 1931 (281 A^o) and 1932 (074 A^o).

Biggest October OD % Fall(a)		Sun E^o	Moon E^o	Phase A^o
Oct 17, 1930	-4.70	204	147	303
Oct 05, 1931	-6.78	191	281	281
Oct 05, 1932	-7.15	192	268	074
Oct 16, 1933	-5.33	203	170	327
Oct 12, 2000	-3.64	200	012	172
Abbreviation: OD – One Day (a) In addition to DJIA AOD falls.