The 55-Day Phenomenon

By Lawrence G. McMillan

Both the Crash of ‘29 and the Crash of ‘87 – two of the worst days in market history – occurred exactly 55 calendar days after the market had made an new all-time high.  In other words, 55 days after the top, people are getting anxious.  For those who believe in this theory, rather than coincidences, it supposedly has something to do with Fibonacci and/or biorhythms – who knows?  

I can’t believe that I forgot about to mention this in advance.  That date has passed in this cycle.  So far, the all-time high was made on August 15th, at 2193.80 on $SPX.  Fifty-five calendar days later was October 9th, which passed without incident.  

Perhaps the better point to be gleaned from these crashes is that traders do get anxious when prices stop going up, and they are on a tight leash.  When the market pulls back modestly for two months, they can take that, but then if there is a sharp break, that’s it – sell!  This is why we have the intraday put buy in place – not because we expect a market crash, but because we do expect selling to accelerate greatly when a major support area is broken, even intraday.  

I would not find it at all surprising if a break of support caused a flood of panic selling for a day or two – and perhaps even more.  When it begins to feed on itself, it can be ferocious.  We saw it in August 2015 and last January (2016), and there is really no reason why it couldn’t happen again.  But a lot of money has been lost trying to anticipate when the break will occur.  It is better to let it show itself and then jump in, rather that try to pick the top for months and months as many “smart guys” have been doing.

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