Friday, the Bear Came Early

For anyone who’s wondering what ever happened to the 87-day cycle, it’s back.  Recall that we found that many of the significant downturns since 2007 fell within 15 days of an 87 calendar day cycle [see: Sure, it Works in Practice from May 10.]  Here’s the chart and graph from that post:

The average drop was 4.16% within 3 trade days, and 11.27% within 30 trade days.  The actual average interval was 87.3 days, with a standard deviation of 11.4.

I never came up with a logical reason for the cycle to work as it has.  The best idea I’ve had is that 87.3 is about three times the lunar cycle of 29.5 days (3 * 29.5 = 88.5 days.)  I’ve always been dubious of planetary influences in markets, but many swear by them.  Who am I to argue?

Besides, the only other statistic I can find that fits 29.1 days exactly (87.3 / 3 = 29.1) is the average number of days in a woman’s menstrual cycle.  Don’t want to go there.

As always, I’ve saved the best for last.  The only “failure” I could find in the pattern was on 12/26/07, when a 15% drop came along after 76 days.  But, here I fudged a little.  In reality, the decline started 10 days earlier on 12/11/07.  The market dipped 88 points in 5 days, and recovered 63 of them by the 26th.

I initially thought to use the 26th as the starting point because: (1) the decline really picked up steam then, and (2) it was closer to 87 days.  If I had used the 11th, it would have been only 61 days since the previous peak.  Interestingly, the next peak came only 63 days after the 26th.  I wondered, at the time, if the cycle duration “compressed” at market tops for some reason.

This may be one of those nonsensical statistical oddities that works for a while, then never does again.  But, the recent May 2 top, which came 73 days after the Feb 18 top, was 67 days ago.  If the cycle does compress at tops, we could expect a peak any time, now.  And, what better time than after a moon shot like we’ve had the past two weeks?

I’ve made no secret of my conviction that this is a topping pattern that’s just about run its course. I believe today’s high of 1356.87 is as high as we’re going to go.  If so, and just doing the math, here… an average 4.16% 3-day drop from today’s close would take us to 1297.  An average 11.27% 30-day drop would mean 1200. 

Happy trading!

Comments

Friday, the Bear Came Early — 3 Comments

  1. Today's futures closed at 1346 (cash equivalent). We may test 1356 again.

    Next week if OpEx. Do you think MM will hold the price at current level or you think your 4% drop in 3 days still has a chance?