When Stock Market Synchronicities Collide - Red Alert?

By: Submissions

Patricia Chew writes:Let’s start with “The October Effect”; it is the theory that stocks tend to decline during the month of October. Obviously it doesn’t happen every October so the theory doesn’t stack up against the statistics and, mainstream investment analysts consider it to be a psychological event rather than an actual phenomenon.

Christopher Carolan, in an award-winning 1998 article, "Autumn Panics: A Calendar Phenomenon"
extended the October Effect and demonstrated how technical analysis and lunar cycles can be combined.  He pointed out the tendency for financial panics to climax into the 28th day of the 7th month (Tishrei) of the Jewish Ecclesiastical calendar. In the Gregorian calendar, this is often in the month of October. 

Looking at some of the worst historical stock market crashes, this observation has held up for the Panic of 1857, Black Friday 1869, Crash of 1929 (grand daddy of all crashes), Black Monday 1987, the 911 market crash and the Great Financial Crisis of 2008. Not bad statistically.

Given the month and window dates was intriguing but which years?

I decided to look at the Chinese calendar which like the Hebrew calendar, is also lunar based. The Chinese calendar has a 12 year cycle, each marked by an animal sign. There are also five elements (more accurately, the Five Changes or Wu Xing) – wood, fire, earth, metal, water and they rotate in that order to match against the ruling animal of the year. As an interesting aside, (and typical of how the West and the East view their world),  there is semantic difference in the way “elements” are characterised. While the Greek tradition regards elements as typically unchanging building blocks of matter, the Chinese view them as changing material forces, dynamic, interdependent, mirroring the cosmos’s ongoing existence and development.

To revert to the same animal/element combination will take 60 years, which, coincidentally, corresponds to the Kondratieff Wave, a supercycle which connects innovation cycles and economic development.

What I found when I looked at the Chinese calendar was that almost every major financial crash has happened in the Year of the Snake.  I had, with some good accuracy:

• The Year
• The Month
• The dates

Obviously, this is anecdotal evidence but still, a rather appealing and elegant observation.  Going by this, 2013, another Snake year, bears caution, and the period from the 14th day of Tishrei climaxing into the 28th day may be trecherous.

This is from Wednesday 18th September, climaxing into Wednesday 2nd October; watch in particular that weekend of the 29th September.

Note that this is not an articulation of superstition; the Chinese horoscope is merely a convenient way to look at cycles.

While my interest centres mostly in the financial markets, it is noted that significant political and sociological events have also occurred during years of the Snake.  Starting from the last or 20th century alone, each Snake year has been marked by at least one event that significantly affected the course of history:

• 1905:         The Russo-Japanese War, “the first great war of the 20th century” in 1904-05 set the

stage for the Russian Revolution in1905 and led to the rise of a military Japan.  It also set the stage for WW1 .

• 1917:         United States enters WW1, with President Woodrow Wilson declaring war on Germany,

a departure from American Isolationist policies.  The Dow Jones index lost 40.1% (the ninth worst US stock market crash this century)

Also in 1917, two revolutions changed the face of Russia forever; in February, the civil war toppled the Russian monarchy establishing a provisional Government. A second revolution in October established the Bolsheviks as the leaders of Russia, leading to the creation of the world’s first communist country.

• 1929:         The grand-daddy of all stock market crashes started in September 1929. Over a period

of 71 days the Dow Jones Index lost 48% before a 5 month bear market correction ensued. The slide continued in April 1930, ending after 813 days in July 1932, the DJ Index losing another 86%. A full recovery did not occur till 1954, twenty two years later

• 1941:         (WW2 1939 – 1945).  Hitler attacks Soviet Russia (Operation Barbarossa) on 22 June

1941.  Over four million soldiers of the Axis powers invaded the USSR along a 2,900 km (1,800 mi) front, the largest invasion in the history of warfare. Hitler had said, “when the attack on Russia starts, the world will hold its breadth”.

Japan attacks Pearl Harbour on 7th December 1941 ending the isolationism that President Roosevelt had struggled against for over 7 years, and drawing the United States into WW2

• 1953:         The Korea Armistice Agreement was signed 27th July 1953, ending the Korean War but

creating the Korean Demilitarized Zone (DMZ), a 4km (2.5 mile) wide fortified buffer
zone between the two Korean nations.  The DMZ is currently the most heavily defended national border in the world. Interestingly, in March 2013, sixty years hence, the young Kim Jong-Un declared the Agreement void

• 1965:         An article criticizing the stage play "Hai rui Dismissed From Office"marked the start of

a propaganda campaign that led to the Cultural Revolution. Over the following decade, millions of innocent Chinese citizens were wrongfully persecuted, tortured, and killed.

Personally, it was the year when my homeland, Singapore was expelled from the Federation of Malaysia, to date, the only nation earning independence that way. Most international media doubted Singapore could survive with no hinterland, no resources, severe unemployment, a housing crisis, racial unrest and regional aggression. Prime Minister and founding father Lee Kwan Yew cried on TV and I watched, without understanding much then, the distress on my parents’ face. 

• 1977:         This was actually a benign Snake year where Star Wars and Bee Gees’ Saturday Night

Fever featured, though some may say the death of Elvis Presley in August was proof that the Snake’s scourge was still at work. Still it was an extraordinary year as the Big Ear Radio Telescope heard what is till today, considered the strongest and clearest signal ever received from an unknown source outside of our solar system. As if to punctuate “the Wow Signal Incident”, just over a month later, the bizzare Petrozavodsk phenomenon was observed in Northern Europe.

• 1989:         1989 saw the collapse of communism in Eastern Europe, with the fall of the Berlin Wall   

on the 9th November the perfect symbol. Until then, the wall had been the perfect metaphor for the Cold War, the divide between two ideological camps in Europe. The collapse paved the way for increased integration across Greater Europe. This has been sorely tested in late 2009 when the ongoing European Sovereign Debt crisis ensued.

In Beijing , the Tiananmen Square Massacre took place on the 4th June, the scale of military mobilization and resulting bloodshed is considered unprecented in the history of Beijing. One of the most iconic images in this century is that of the The Tank Man.  TIME magazine would later name the “Unknown Rebel” (as the man came to be called) as one of the 100 most important people of the 20th century. Click here to see the Video

• 2001:         The World Trade Centre 911 attack, leading to the ongoing global war on terrorism.

Weapons of Mass Destruction, WMD, War on Terror and Global War on Terrorism are viral memes that have spawned out of the incident. To prevent a market melt down, the NYSE was closed for a week, the longest shutdown since 1933. The markets reopened the following Monday to the Dow plummeting more than 7%, setting a record for the biggest loss in exchange history for one trading day. Is it a coincident that Pearl Harbor and 9/11 are the only two major attacks on US soil in the past century, and, that they occurred exactly six decades apart, both in years of the Snake?

Patricia Chew
patchew1010@gmail.com
http://www.linkedin.com/in/patriciachew

Short Bio:
I started my finance career as a US long bond trader in the early 1980s before moving into equities markets. Originally from Singapore, I have lived for the last ten years in Tasmania, the last outpost state of Australia where I not only continue my finance career as a financial advisor, but also own a sea based abalone farm.

© 2013 Copyright Patricia Chew - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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