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The "55-day Rule" is in play

By Lawrence G. McMillan

Most people don’t realize that the Crash of 1929 and the Crash of 1987 both occurred exactly 55 calendar days after the stock market had topped. All prices in this article are closing prices on the day being referenced.

1929: the peak in the Dow was reached on September 3rd, when it closed at 381.17. 55 calendar days after September 3rd was (Monday) October 28th. That was the exact date of the Crash of 1929, with the Dow down 40.58 points, or 13.5%.

1987: the Dow topped out at 2722.42 on August 25th. 55 calendar days later was (Monday) October 19th when the Dow collapsed 507.99 points, or 22.6% in one day!

This year, the Dow topped out on January 4th, and 55 days later is Monday (!) February 28th.

In both 1929 and 1987, there was a sharp market decline in the week preceding the Crash, so that is something else to watch for. These Crashes just didn’t appear out of thin air.

Fibonacci fans like the fact that 55 is a Fibonacci number. There is probably something there with biometrics, too (remember that?). Of course, there is no real explanation, except for the fact that in both cases, 55 days of not seeing stocks go up was about all people could take. In both cases, most stocks had already started downward, just as they have over the last eight months.

Other “crashes” don’t line up so neatly. The Flash Crash of 2010 and the “Tech Stock Massacre” of April 14, 2000, both occurred far closer than 55 days to the previous market top. 

In recent years, there have been only a few times where a market top has lasted for more than 55 days. Usually, by then, the market has recovered and is merrily on its way to new highs. However, in 2013 and in 2016, the 55-day Rule was “in play,” but did not produce a crash. The sharp market selloff of August 2015 was “related” to the 55-day time period but did not line up exactly.

For whatever it’s worth, the 55-day period has proven to be problematic in a big way two times in the past. To ignore the possibility of a third occurrence could be detrimental to your net worth.

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