Historical Patterns Reveal Eight Step Process for Market Crashes

bear_vs_bull2

Analysis of previous market crashes reveals consistent patterns, which can help us know what might happen in the future.

My previous post presented three historical cycles pointing to Passover 2016 as a major turning point. However, history also tells us what we can expect to see happening after the crash starts. Previous crashes have not happened quickly, but have taken 40 to 44 trading days from the final market top to the first bottom with most of the drop occurring during the final 4 to 8 trading days. If this pattern is repeated and the market top is reached by the end of April, then we can expect to see support levels tested during May and panic selling beginning in about mid-June.

Previous crashes have followed a consistent sequence of eight steps. If the historical pattern is repeated, these steps provide a helpful roadmap for investors.

Note: Market index levels referenced throughout are intraday highs and lows.

Step One – The Final Top

The first step in every crash is finding the final top, the highest point in the market prior to the crash, which becomes the reference point for everything that happens afterwards in terms of both time and changes in the market indices. Last week, a top was established on April 20 at 18,167.63 Dow and 2,111.05 S&P. However, we could still see a new top reached during the next few days.

Step Two – Testing Support

After the top is reached, a testing phase begins in which the market drops down to previous support levels, testing whether or not they can hold. This phase accounts for the longest period of time, but the smallest part of the drop. It typically lasts 34 to 37 trading days from the final market top, but accounts for only 19% to 28% of the total drop. During this phase, support levels are repeatedly tested with about 2 to 4 attempts before breaking through. Each failed attempt is followed by a sharp rebound that peaks within one or two trading days. However, with each attempt investor confidence weakens until the price eventually breaks through.

The testing phase occurs because not everyone perceives it as a crash when it begins. Initially, investors react to bad news by scrambling to protect their wealth and maximize profits, which creates big swings up and down, but it takes time for everyone to become convinced about selling the market. Bullish investors see the low prices as buying signals while those holding short positions see them as opportunities to take profits, so they close their positions, which puts upward pressure on prices.

For example in 2008, the market topped on August 11, but 23 trading days later, on September 12, had only dropped by -3.1%. Then on Monday September 15, Lehman Brothers, which was the fourth largest investment bank in the United States, filed for bankruptcy. With over $600 billion in assets, it was the biggest bankruptcy in history. The news caused the Dow Jones Index to drop 504.48 points (-4.4%) that day, but many investors saw the drop as a buying opportunity, so it bounced back up 141.51 points the next day. Investor confidence was also boosted by a statement released by the Fed on Tuesday, September 16, promising “substantial easing of monetary policy.”

“Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth.” (Source: Federalreserve.gov)

Following the news of the Lehman bankruptcy, the markets recovered and finished the week almost flat, down just 33.55 points (-0.3%), which shows many investors were still behaving as if there was no crash.

In the following week of September 22-26 2008, the market dropped by only -2.2%. So ten trading days after the news of the Lehman bankruptcy, investors were still divided about whether or not there would be a crash. If this pattern is repeated this year, we could reach the end of May and still have many skeptics questioning whether or not a crash is really happening. This process takes time!

Even in the third week after the Lehman bankruptcy, September 29-October 3, the markets dropped 777.68 points (-7.0%) on Monday September 29, but then shook it off and recovered most of the loss the next day, up 485.21 points, which again shows investors were still divided about what was happening.

The following provides a brief summary of the testing process in the crashes of 1987, 2001, and 2008.

  • 1987 – The market set a final top on August 25 then dropped 9.2% and tested support levels 9 trading days later on September 8. It bounced off support only to return and test it again 10 trading days later on September 22. Again it bounced before dropping back down for the third time 14 trading days later when it finally broke through, igniting 4 trading days of panic selling. In total, the testing period lasted 35 trading days, took 3 attempts to break support, and ultimately accounted for only 19% of the total drop from the final market top on August 25 to the first bottom on October 20, as shown in the chart below.
  • 2001 – The market set a final top on July 19 then dropped 4.5% and tested support levels just 3 trading days later on July 24. It bounced off support before returning to test it again 13 trading days later on August 10. Again it bounced before dropping back down for the third time 8 trading days later on August 22. Again it bounced before finally returning and breaking through 5 trading days later on August 29, which ignited 8 trading days of panic selling. In total, the testing period lasted 34 trading days, took 4 attempts to break support, and ultimately accounted for only 23% of the total drop from the final market top on July 19 to the first bottom on September 21, as shown in the chart below.
  • 2008 – The market set a final top on August 11 then dropped 8% and tested support levels 27 trading days later on September 18. It bounced off support before returning to test it again 7 trading days later on September 29 and finally broke through, which ignited 7 trading days of panic selling. In total, the testing period lasted 37 trading days, took only 2 attempts to break support, and accounted for only 28% of the total drop from the final market top on August 11 to the first bottom on October 10, as shown in the chart below.

If the historical pattern is repeated, we can expect the drop during the testing phase to be relatively small compared to what comes next.

Step Three – Panic Selling

Step three is a relatively short period of panic selling, typically lasting about 4 to 8 trading days, but accounting for 72% to 82% of the total drop.

  • 1987 – Four consecutive trading days of panic selling drove the markets down from 2,528.39 on October 13 to 1616.21 on October 20 declines, which is a 36% drop in 4 days. The panic selling accounted 81% of the total drop from the final market top on August 25 to the first bottom on October 20.
  • 2001 – Panic selling was interrupted by the terrorist attacks on September 11, which caused the markets to be closed for 4 days. Even so, the market dropped for 8 consecutive trading days with 6 of them in triple-digit declines. The total drop during the panic was 19.6% starting at 10,066.69 on September 5 and ending at 8,062.34 on September 21. Those 8 trading days accounted 77% of the total drop from the final market top on July 19 to the first bottom on September 21.
  • 2008 – Panic selling did not begin until 14 trading days after the Lehman Brothers announcement and continued for 7 consecutive triple-digit drops from Thursday October 2 until Friday, October 10. The market dropped 28% during the 7 days of panic selling, which accounted for 72% of the total drop from the final market top on August 11 to the first bottom on October 10.

If the historical pattern repeats in 2016, we can expect to see 72% to 82% of the total drop occurring during a few days of panic selling in mid-June.

Step Four – The First Bottom:
The fourth step is reaching the first bottom. Previous crashes have demonstrated a consistent pattern of taking 40 to 44 trading days from the final top to the first bottom. During that time, the Dow Index has dropped about 25-41%.

  • 1987 – After making the final top on August 25, the first bottom occurred 40 trading days later on October 20. The total drop in the Dow Index was -41%.
  • 2001 – After making the final top on July 19, the first bottom occurred 42 trading days later on September 21. The total drop in the Dow Index was -25%.
  • 2008 – After making the final top on August 11, the first bottom occurred 44 trading days later on October 10. The total drop in the Dow Index was -34%.

We can follow these patterns to estimate when and where we might find the first bottom in 2016.

Step Five – Bounce After the First Bottom:

The fifth step is a big bounce after the first bottom. By knowing where the bottom is and when it will be reached, traders can make big profits from this bounce because the market moves up sharply for just one or two trading days before leveling off and heading back down to the second bottom. The following statistics from previous crashes show the size of the bounces.

  • 1987 Bounce – The Dow hit a low of 1,616.21 on October 20 and rallied back to a high of 2,081.54 just one trading day later on October 21, a gain of 28.8%.
  • 2001 Bounce – The Dow hit a low of 8,062.34 on September 21 and rallied back to a high of 8,695.54 just two trading days later on September 25, a gain of 7.9%.
  • 2008 Bounce – The Dow hit a low of 7,882.51 on October 10 and rallied back to a high of 9,794.37 just two trading days later on October 14, a gain of 24.3%.

Step Six – The Second Bottom:

The sixth step is the second bottom. Previous crashes have had two bottoms within 55 trading days of the final top. The first bottom occurs 39-44 trading days from the final top followed by the second bottom 6-13 trading days later, as shown below.

  • 1987 –The second bottom followed 6 trading days later on October 28, which was 46 trading days from the final top. The second bottom was 9.4% higher than the first bottom.
  • 2001 –The second bottom followed 13 trading days later on October 10, which was 55 trading days from the final top. The second bottom was 11.6% higher than the first bottom.
  • 2008 –The second bottom followed 11 trading days later on October 27, which was 55 trading days from the final top. The second bottom was 3.3% higher than the first bottom.

So if we reach the final top in April and the historical pattern is repeated, we can expect to see the first bottom in mid-June followed by a second bottom near the end of June or early part of July. We can also expect the first bottom to be lower than the second bottom.

Step Seven – Bounce After Second Bottom:

The historical pattern shows the second bottom typically marks the end of the panic selling and the beginning a big bounce, gaining 5% to 16% in one or two trading days and igniting a new rally.

  • 1987 2nd Bounce – Gained 16% in two trading days from 1,767.74 to 2,049.07 on October 30.
  • 2001 2nd Bounce – Gained 5% in one trading day from 9,000.14 to 9,432.04 on October 11.
  • 2008 2nd Bounce – Gained 15% in just two two trading days from 8,143.59 on October 27 to 9,363.32 on October 29. It then reached a new top of 9,653.95 four trading days later on November 4.

Step Eight – The Final Bottom:

Although the second bottom marks the end of the panic selling, it does not necessarily mark the end of the crash.

  • 1929 – Took three years to reach the final bottom during the great depression. In total, the market declined by 90%, making it the largest percentage drop in history.
  • 1987 – Took 71 trading days from the final top to the final bottom, which was finally reached on December 4, 26 trading days after the second bottom.
  • 2001 – The second bottom was the final bottom, so the crash took a total of 55 trading days from the final top to the final bottom.
  • 2008 – Took 55 trading days to reach a second bottom on October 27, but it wasn’t done yet. It took another 19 trading days to reach a third bottom on November 21, and then another 70 trading days to reach the final bottom on March 9 2009, making a total 143 trading days from top to bottom with a total drop of 45%.

Like 1929 and 2008, the crash in 2016 could continue for months or even years before reaching the final bottom due to potential bank failures caused by exposure to trillions of dollars of derivatives and unprecedented debt levels. Our financial system has never been as vulnerable as it is now.

Conclusion:

On July 7 2014, God revealed to me in a dream a sudden event is coming, orchestrated by hidden shadow figures, which will cause pandemonium throughout the world. He gave me a total of four warning signs to let me know we were in the season when this event would happen and all four have now been fulfilled.

Last month, I shared how different prophetic warnings came together to reveal Nisan 17 (April 25) as the start date for the next market crash. I shared how Phanuel was shown it would be a day of new beginnings, marking the start of a market crash. I still believe that, but I have not been shown the details on how it all unfolds, which is why I started my sentences in this post by saying “If the historical pattern is repeated…” The sudden event does not have to fit into the historical pattern, but it seems likely it will.

In previous crashes, the bull has been slow to die, so it seems likely to be the same this time, fighting all the way through the long testing phase before finally giving up for a few days of panic selling, which would likely be triggered by the sudden orchestrated event, like I saw in my dream.

If we don’t see panic selling beginning during Passover, I believe it is because we are following the historical pattern, which means it will come later on. I would expect some people will become skeptical while others will persevere in faith regarding what God has already revealed to them. Hopefully this post will also help answer questions.

My purpose for sharing the patterns discussed is to shed more light on what is coming, not to negate anything God has revealed. I still believe the prophetic insights, but the same God who revealed those things has also revealed the wisdom in understanding the patterns, so I believe we need both.

More time and effort went into this post than any previous post. It took longer than I wanted because it required many hours of phone calls and research to pull together. In my replies to comments during the past month or so, I have been sharing summaries about what I have learned from these historical patterns, including the pattern of 40 to 44 trading days and my own plans to cover all of June with any options purchases.

I believe knowing the sequence of steps followed in previous market crashes can help us make smarter investment decisions, but it is provided for information purposes only and is not a recommendation for investing. I have found it helpful in developing my own plans, which now include taking profits on short positions when the market hits bottom, then taking long positions prior to the big bounces.

Note: Special thanks to businessman and market investor Aaron Brickman for explaining these historical patterns to me and sharing his data. He also explained the historical patterns do not have to repeat because they are just patterns, not predictions. This article would not have been possible without his help.

James Bailey

Author: James Bailey

James Bailey is an author, business owner, husband and father of two children. His vision is to broadcast the good news of Jesus Christ through blog sites and other media outlets.

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Phanuel
Phanuel
Member
April 25, 2016 3:37 PM
(Posting in this thread too) There have been a few accusations so I will humbly present the facts. I have no reputation and won’t defend myself. Just reminding you of the facts. 1. Since September 2015, I have stated multiple times (even when most where expecting a crash in September) that I believed the crash was in May/June 2016 2. I NEVER gave any word concerning Germany 3. I have stated many times (Since last September), I believe a Bank Holiday is coming this June 4. This is what I shared about Nisan 17 (rather reluctantly)…… “This interpretation from Holy Spirit came to me. Nisan 17 (117) is the day (24=day) of the new beginning (new beginning=8). The red color value 117 indicates the stock market will be in a sea of red on Nisan 17.” “I also had a dream on Jan 17, 2016 revealing the collapse season had begun. The significance of this date, January 17 (1/17 on our calendar) was pointing to 117 on the Hebrew calendar, which is Nisan 17. In 2016, Nisan 17 is April 25.” Note the key words, “new beginning”, “sea of red”, “Collapse season” Now when you click on this Link and scroll to the second table..you see a sea of red through out the world. Every major stock market was red today. http://www.indexq.org 5. I shared the stock market will fall someday greater than 1300 points. I never stated it will happen today. In fact I shared I wasn’t sure when that would happen. 6. Last Friday, most people were predicting the stock market will be up today (especially going into a fed meeting). A dream this past weekend showed today will be a small drop (I didn’t share it because there was a lot of negativity and I decided to… Read more »
Mark McGuiness
Mark McGuiness
Member
April 25, 2016 5:25 PM

God bless you Phanuel. Thank you for this concise post. Shalom.

Hugh M.
Hugh M.
Member
April 25, 2016 4:44 PM

Thanks Phanuel,
I believe the Lord has shown you and James dreams and visions and you are doing the best that you can to communicate what you’ve been shown.
Thank you!
Hugh

Patricia D
Member
April 25, 2016 1:01 AM

When I read the words in the prophecy poem “another checkpoint would originate” I immediately thought another terrorist attack would lead to more security checkpoints being established after some event took place (like after 9/11). I remember one of John Paul Jackson’s headlines read “Where was the navy?” and one of the previous post’s dream talked about a dark-skinned man standing at a port. Our ports are definitely not secure. Did anyone see on superstation95.com today about the tsunami buoy sensor off of the New Jersey coastline being triggered? They’re not sure what triggered it but said one possibility would be if a submarine ran into the buoy line and submerged it suddenly. US Navy said there were no subs in the area at that time. A foreign sub maybe? Something to do with a false flag event?

Michael Fisch
Mike Fisch
Member
April 24, 2016 11:47 AM

This is an excellent and much-appreciated piece of research.

It keeps coming to mind that we may see a “black swan event” that accelerates this crash process. If you are not familiar with the black swan theory, see: https://en.wikipedia.org/wiki/Black_swan_theory

The sudden event orchestrated by shadow figures that James saw might be a double whammy natural disaster or false flag attack followed by a market crash. This would give the banksters a scapegoat for blaming the market crash on. By the way, multiple countries possess the technology to induce earthquakes and tsunamis as well as create dramatic weather events, so these are not necessarily “natural” when they occur.

I believe the coming global market crash is the Black Horse in Revelation 6. The imagery suggests a market crash (symbolized by the pair of scales) followed by hyperinflation and famine (very expensive wheat and barley).

The judgment on Babylon (America) in Revelation 18:8 says: “Therefore shall her plagues come IN ONE DAY, death, and mourning, and famine.” Death and mourning could result from the natural disaster or false flag, while the earthquake triggers the economic crash which leads to famine per the Black Horse. It comes in one day! We may see this prophecy fulfilled shortly.

From Matt Smith’s prophetic poem posted on Z3 last December: “From March until June, The spring season shall arrive, There will be many people, Found not to be alive.” Did they die from a natural disaster or false flag? Poem continues: “During this same season, Another checkpoint will originate, Then another crushing blow, Will seal this nation’s fate. During these two seasons, The economy will decline, Look to Me My people, I say, ‘Your souls are mine.’” Are checkpoint and/or crushing blow events related to a market crash?

Is anyone else thinking in terms of a black swan event?

Mav
Mav
Member
April 24, 2016 10:50 AM

Possible black swan event that could trigger markets. The White House may release part or all of the 28 pages from the 911 Secret Report which the Saudi’s vowed, if done, they will sell up to 750 bill in US markets.

http://www.zerohedge.com/news/2016-04-24/white-house-set-release-secret-pages-sept-11-report

Aaron
Aaron
Member
April 24, 2016 8:26 AM

For those technical analysts on board, have you checked the aroon oscillator. This has been a pretty accurate gauge of past market corrections. It seems to be dead on again this time. I use a 50 day period.

James Reeve
James Reeve
Member
April 24, 2016 8:18 AM
From last night: I am at a table talking with someone. Everyone begins to line up for the cafeteria line. We’re talking, so we get into the line a bit late, and thus, are back a ways from the cafeteria entrance. While doing this I’m carrying a large white backpack. It sort of bumps into people while I’m in line, so I apologize. I’m now at the head of the cafeteria line and I’m having trouble finding a tray (white) and bowl. I put my backpack down along the wall some place along here. There’s some water on the ground. I find a bowl (black) and fill it with a type of heavy coleslaw, lots of green, but with white. I move on down the line and I now remember my backpack and am worried I forgot it. However, I see it along the wall and pick it up. I next pick up a roast beef sandwich further down the line. EOD I think this is near term. There’s nuance in here that I’ll probably miss, but the main story seems to be that there’s a bullish move in front of us, but maybe not immediate. I think the large backpack is my present short positioning (maybe). There’s a long line before we reach the entrance, so that tells me that we may coast along a day or two early this week. The actual cafeteria has no white trays, I don’t know what that means. I put my backpack down, so maybe I trade out of my short positions, or they go down. I pick up the green salad, with white, and black bowl. Green salad is bullish equities, combined with white (silver), and black bowl (oil). The colors are well established metaphors. The roast beef sandwich is also a… Read more »
Brad
Brad
Member
April 24, 2016 6:58 AM
Just one more comment….(sorry I’m posting so much this morning) America not only follows the pattern of Babylon, it also follows the pattern of Egypt…….the Father is giving us clues…..that we too will have an Exodus. Remember Isaiah 46:9-11……I tell the end from the beginning. So, the beginning of the book is actually where we need to look for the typologies of the end….like Joseph and the collapse of the economy in Egypt. If you do a study of Revelation……it is actually a complete mirror to the book of Exodus but that is a topic in and of itself. Here are some examples of the striking similarities highlighting how America is like Egypt…….. Egypt: divided by the Nile River America: divided by the Mississippi River Egypt: 1/3 of territory was east of Nile while 2/3 was west of the Nile America: 1/3 of our territory is east of the Mississippi while 2/3 is west of the Mississippi Egypt: the Nile ran through 5 cities: Memphis, Luxor, Alexandria, Thebes, and Cairo America: the Mississippi runs through the same 5 cities: Memphis (TN), Luxor (AR), Alexandria (LA), Thebes (IL) and Cairo (IL) Egypt: God’s chosen people resided in the Northwest corner of Egypt in a place called Goshen America: Goshen, NY is located in the Northeast portion of U.S. This area of New York has the largest concentration of Jewish settlers in the world. Egpyt: Exodus 1:8: A New king rose up who did not recognize Joseph America: A New president has risen up who does not recognize the Lord’s family Egypt: The Nubians integrated into Egypt from the Southern border that was not secure and mixed into the political structure with Egypt eventually seeing Nubian Pharaohs (Nubians are originally from the area of Kenya and the Sudan) America: The Muslim Brotherhood… Read more »
Brad
Brad
Member
April 24, 2016 6:31 AM

Last night, our local news ran a story about an accident with military humvees the US was dropping in Germany. The story highlighted that 3 humvees were destroyed when they came loose from their deployment shoots and fell to the ground being completely obliterated. The main point of the story was the $$$$ involved in such an accident. My son said…..” the bigger question is why are we dropping military equipment in Germany”. Well, this morning I read the following article…..

http://www.washingtonsblog.com/2016/04/obama-requests-support-possible-war-russia.html

This article comes from German Economic News and highlights just how close we are to war with Russia……and I think we all know that it has to do with the dollar. They have become very assertive…….and now that their buddies (China) have a gold backed currency……I think it is about time for things to begin. For any of you who don’t believe we are Mystery Babylon, I do pray you will seek the Lord about it. A time is coming soon for the Second Exodus….not from Egypt…..but from America. Thank you for all of your diligence in warning people James…….and your heart to prepare the people!

Bill Weather
Member
April 24, 2016 6:18 AM
Chris McDermano (from Facebook group – End Time Investing) 2 hours ago Obama Visit to Europe Suggests Deustche Bank Smoking Gun Bailout is in Works (and when word gets out it will trigger a stock market rout in Germany..) 1. Google Query ‘Deustche Bank Bankrupt’ it will allow no queries after February 24th.. Active censorship by gatekeepers is being questioned.. 2. Politicians Sway Public (and are VERY good at it).. Suddenly Britain politicians are completely silent about a movement to leave the EU ahead of a public vote (supporting it). If politicians and controllers do not want to allow that type of thing they simply do not allow the vote in the first place. Think about it. 3. Britain voting to leave the EU excludes them from a multi-national bailout effort to support Deustche Bank which is secretly being engineered behind the scenes by the sitting US administration. 4. Obama suddenly is threatening Britain citizens with a 5-10 year setback if they do not ‘comply.’ 5. NEW head of Deustche Bank Asset Management on medical leave “The new head of Deutsche Bank’s asset management division, Quintin Price, is to go on medical leave, the German bank said on Monday.” 6. Deustche Bank will report ‘dismal earnings’ on April 28th, 2016. 7. A bail-in would be expected at the bank, with European nations, along with the Federal Reserve backstopping the bailout, while Obama looking to take ‘legacy credit’ if this whole stinking mess can be pulled off. 8. Deustche Bank has 65-70 TRILLION dollars in derivative exposure, and has probably gotten caught and sitting underwater for a large portion of it. 9. If anyone would leave money in that bank they would need their head examined. It’s accounts are about to be frozen. 10. To support and stabilize the market ‘ahead… Read more »
Melanie G
Melanie G
Member
April 24, 2016 7:00 PM

Thanks Weather, this was really good and organized all the facts that are swirling around out there. Makes sense!

Javita
Javita
Member
April 24, 2016 6:42 PM

Thanks Weather for posting Chris Mc. Keen analysis, so more can see this perceptive, organized conceptual
article .

Bob
Bob
Member
April 24, 2016 5:35 PM

Bullet 10 pts, 10 thumbs up. I have the same info as well. Boom derivatives. Carpet sweepers are @DB just like Bear Sterns and Lehman Bros. before they collapsed and closed. Same cleaning crew @DB.

Julz
Julz
Member
April 24, 2016 3:22 AM

Up until reading this my expectations for Monday had been down and possibly a collapse. I felt the encounter with the dove was another confirmation that when I start work after the weekend the blessing comes quickly. It has occurred to me now that Monday is a public holiday in my part of the World so I don’t actually start work until Tuesday. That does leave room for a short and final bull charge to come on Monday which is consistent with what you’re seeing.

It is possible of course we hit a new high and an event collapses Germany all on the same day. Many words have described how this crash will come suddenly so there is no reason it couldn’t occur on the heals of a new high. If Monday does not start off weak I may look to reduce some of my exposure so I can take one more swing at this bull.

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