Friday, October 24, 2008

Stock traders seek guidance from history and astrology

This post at the WSJ was the talk of Wall Street Friday afternoon:
Stock charts have unequivocally failed, so traders are turning to star charts.

I got this from the most bearish man in Western civilization,” reads an e-mail forwarded from a trader at a mid-sized Wall Street firm. “It’s legit. Panic lows have historically occurred on day 27/28 of the 7th lunar cycle, which are this Sunday and Monday. The panics of 1857/1907/1929/1987/1997 all marked their lows on these days in October!”

Fibonacci retracements may work during steady markets, but horoscopes are probably as good a charting tool as any this time around.

Right now, the DJIA is off 24% for October. If the Dow finished with that loss, it would be a bigger drop than October, 1987 and October, 1929, the two most infamous crashes in history.

A more sanguine and rational Floyd Norris, spent the day live-blogging trading the New York stock exchanges. He summed things up like this:
October has one week left after today, and I would not dream of forecasting it. But in the unlikely event that prices do not move from today’s closing levels, here is how September-October will rank on the list of worst two-month periods for U.S. stock indexes.

Dow Jones industrials (1920 to 2008)

1. April-May 1932, down 39%
2. March-April 1932, down 31%
3. October-November 1929, down 30%
4. October-November 1987, down 29%
5. August-September 1931, down 29%
6. September-October 1929, down 28%
7. September-October 2008, down 27%
8. November-December 1931, down 26%
9. April-May 1931, down 25%
10. September-October 1987, down 25%

Standard & Poor’s 500 (1928-2008)
1. April-May 1932, down 39%
2. September-October 2008, down 32%
3. March-April 1932, down 30%
4. August-September 1931, down 29%
5. October-November 1987, down 28%
6. September-October 1931, down 25%
7. May-June 1932, down 24%
8. April-May 1940, down 24%
9. September-October 1929, down 24%
10. September-October 1987, down 24%

Nasdaq composite (1971-2008)
1. September-October 2008, down 34%
2. February-March 2001, down 34%
3. October-November 1987, down 31%
4. October-November 2000, down 29%
5. September-October 1987, down 29%
6. November-December 2000, down 27%
7. August-September 2001, down 26%
8. April-May 2000, down 26%
9. August-September 1990, down 21%
10. July-August 1998, down 21%

Looking at those lists gives me some comfort. Are these two months really comparable to the Depression periods of 1931 and 1932, or to the crash months of 1929? Will the economy do as badly as it did then? Is the threat to civilization comparable to the spring of 1940, when Germany conquered western Europe? Is the current period really worse for Nasdaq companies than the bursting of the tech bubble in 2000 and 2001?

If the answer to those questions is no, then perhaps the selling is overdone.

On the other hand, as Floyd noted, a lot can happen in a week -- especially in a time of "change." The past is no guide to the future.

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