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!