INEFFICIENT MARKET HYPOTHESIS - 7/21

Last week the DJIA reached above the 8000 mark for the first time in history and then quickly retreated with a 130 point drop on Friday.

The DJIA reached and reversed from the 8000 mark going into a (not-so-tight) full moon, seven-planet alignment over the weekend (the "sun" and "moon" are considered planets relative to the earth in determining alignments).

Astrological chart for 7/19/97

+-------<11> 1Tau23----<10>29Pis10-----<9>27Aqu01-----------+
|              | Sat 20Ari13  |              | Jup 19Aqu32r |
|              |              |              | Ura  7Aqu05r |
|              |              |              | Nep 28Cap36r |
|              |              |              | Moo 27Cap53  |
<12> 1Gem21----|-----------------------------|-----27Cap11<8>
|              |                             |              |
|              |    Astrolog (4.10) chart    |              |
|              |   Sat Jul 19 1997 11:05pm   |              |
|              |    -05:00   0:00W  0:00N    |              |
<1>29Gem18-----|    Placidus      Houses.    |-----29Sag18<7>
|              |   Julian Day = 2450649.67   |              |
|              |                             |              |
|              |                             |              |
|              |                             | Plu  3Sag00r |
<2>27Can11-----|-----------------------------|----- 1Sag21<6>
| Sun 27Can30  |              |              |              |
|              |              |              |              |
| Mer 20Leo24  |              | Mar 15Lib18  |              |
| Ven 25Leo55  |              |              |              |
+-----------27Leo01<3>-----29Vir10<4>----- 1Sco23<5>--------+

(Notably, as the DJIA, the most-watched U.S. stock index, reached the 8000 mark going into the planetary alignment over the weekend, the main British and French indexes also reached psychologically important thousand marks and reversed. The London FTSE 100 tested the 5000 mark and the Paris CAC 40 reached the 3000 mark and then both indexes reversed sharply.)

As I have explained in past articles, there is a tendency for the stock market to reach significant tops at round number "psychological barriers" in the DJIA. Furthermore, turning points at thousand marks in the DJIA usually occur around the times of significant planetary alignments.

The first example of this phenomenon occurred in 1966, when the DJIA reached near the 1000 mark for the first time in history. As can be seen in the chart below, the DJIA reversed sharply from Dow 1000 going into February of 1966, when a major seven-planet alignment took place.

Following this initial reversal from Dow 1000 in 1966, the DJIA reversed from the "Magic 1000" mark several more times over the course of the next two decades- falling by more than 30% on average each time.

In 1982 the DJIA substantially broke above the 1000 mark. Stock prices entered a major bull market and, by 1987, the 2000 mark was successfully breached until that year's August Harmonic Convergence top in stock prices and October crash.

The market recovered from the 1987 crash, climbed well above 2000 and then, in the summer of 1990, the psychological barrier/planetary alignment/stock market topping phenomenon repeated once again. In mid-July of 1990, the DJIA closed at a peak of 2999.75 two days in a row and then entered a three-month, twenty percent collapse into October of that year. This reversal coincided with a six-planet alignment associated with the new and full moons in July of 1990 (note the astro parallel with July of this year).

In 1994, the DJIA approached the psychologically important 4000 mark for the first time in history. The DJIA ran up to a print high of 4002 with the full moon following an exceptionally tight seven-planet alignment in mid-January of that year (the potential influence of the planetary alignment was duly noted in a Wall Street Journal article at the time, "A Rare Planetary Bodes A Bust For Booming Stock Market", 2/12/94, p.B1). Next, the Dow fell by ten percent and remained below the 4000 mark until the following year.

In 1995, the DJIA reached a minor top at Dow 5000 around the time of a Thanksgiving seven-planet alignment after which stock prices reversed five percent. The Dow quickly came back and climbed above Dow 5000 and then 6000 last year.

This year, the DJIA peaked just above the psychologically significant 7000 mark with a new moon/solar eclipse after a tight seven-planet alignment on February 7th of this year (see http://www.gaiamind.org/). Next, the Dow fell by around ten percent- comparable to the market decline following the seven-planet alignment top at Dow 4000 in 1994.

Each time the DJIA reversed from the "Magic 1000" barrier between 1966 and 1982, there were all kinds of troubles which emerged ranging from OPEC oil embargoes, to the Vietnam War, to Watergate. One of the most notable cases occurred in October of 1973 when the DJIA rose to just below Dow 1000 as the Arabs launched a surprise attack against Israel which, in turn, led to a major East/West confrontation and an Arab oil embargo against the West. Consequently, the world economy entered a severe contraction and stock prices plunged (see CHART).

In the summer of 1990, the DJIA reversed from 3000 and then Iraq invaded Kuwait, thereby triggered a Persian Gulf crisis and major oil-shock that "caused" the world economy to slip into a recession and stock prices to plunge (see CHART).

Right after the Dow reversed from the 4000 mark in January of 1994, the Fed hiked interest rates and the stock market entered a year-long correction (see CHART).

This year, when the Dow reversed from the 7000 mark, the Fed again raised interest rates for the first time since 1994 leading to the first ten percent correction since 1994 (see CHART).

If the historical pattern is going to repeat here as the DJIA has reached the psychologically significant 8000 mark at the time of a planetary alignment, then a major stock market top has likely just been reached that will be followed by a substantial stock market decline, possibly triggered by some sort of negative international shock.

Given that the negative shocks which have been associated with reversals from thousand marks in the DJIA in the past have ranged from Fed rate hikes to Middle Eastern wars, just about anything bad could soon happen. If the stock market is reaching a Grand Supercycle top at Dow 8000, then the odds are that we are now facing the most negative shock(s) in human history. As I have speculated about in past articles, the most likely negative shock for the Grand Supercycle crash, which may very well occur with a reversal from Dow 8000, is a global war.

(On top of the case that can be made based upon Dow 8000 and the current planetary alignment, one should note that sentiment and valuation measures are also strongly suggesting a major stock market top may be at hand. The PE ratio and dividend yield on the DJIA are around record extremes and the Put-To-Call ratio is at the lowest levels since the top at Dow 3000 in 1990- just before Iraq invaded Kuwait. One might also note that the investors' sentiment poll on the ABS homepage has just reached an unprecedented 87% bullish to 13% bearish. As astute market observers have long noticed, such extremes of irrationally high expectations are often a tell-tale sign the stock market is reaching an important cyclical top.)