The market is on the brink of a potentially very dangerous and vulnerable time period. The time span between October 3rd- November 8th of the 7 year within the decennial pattern has seen some of the most precipitous market declines of the past 110 years. As this newsletter is being written, the market has just entered the beginning of that time span. There are, of course, no mandates that the market must decline over the next 4-5 weeks. The plain and simple fact, however, is that within all the years ending in the digit 7 since 1897, only one year, 1947, has escaped the plague of a precipitous October decline. It could happen again but history argues against it.
Before we show you a picture of previous October- November declines within the 7 year, we thought it would be appropriate to show you another cyclical reason why the market might be vulnerable from this point on. The two charts on the front page of today's newsletter (see link below) depict a 54 month cycle or turning point pattern. We are showing that cycle with two different charts because it has manifested itself in a slightly different way with a high cap index such as the Dow Jones Industrial Average than it has with a secondary stock index such as the Russell 2000. The charts are monthly bar charts and the months of potential resolution displayed on the charts are October 1989, April 1994, October 1998, April 2003, and October 2007.
It should be easy to agree that three of the most important market turning points of the past 15 years were the April 1994 bottom, the October 1998 bottom , and the March- April 2003 basing formation and tests of the October 2002 bottom. Those important turning points are separated by almost exactly 54 months. 54 months would be represented by 1643-1644 calendar days but let's simply use a 54 month time span and count forward from the April 1, 1994 bottom. The next resolution would be scheduled for early October 1998.
October 1st, 1998 marked the exact closing low before the final thrust upward that carried the market upward into its January-March 2000 major tops. The next 54 month span was due to resolve in early April 2003. The actual test of the 2002 lows occurred in March 2003 but after the initial sharp rally, there was a final significant pullback into April 1st, 2003 before the market took off in earnest to the upside. Of course, moving forward another 54 months takes us to early October 2007.
In case you have not been paying attention, the Dow Jones Industrial Average moved to a new all-time high on both a closing and intraday basis three days ago on October 1st, 2007. The 54 month time span strongly suggests we can be looking for an important turn in this exact time zone of early October 2007. Without attempting to pinpoint an exact resolution, it would seem logical from the prior resolutions that any turning point would be resolved by October 10th at the latest.
Stock Market Cycles Website
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