Thirty years ago, the stock market dropped 22 percent in one day. Here is a look back on that event.

Thirty years ago, the stock market dropped 22 percent in one day. Here is a look back on that event.


The bond market had topped in price in March 1987. Rates fell from about 7 percent to 10 percent by October. Stocks had advanced 3.5x since 1982 from 800 to 2700. So-called portfolio insurance was popular among big funds. It was the 50th anniversary of a market turn in 1937.

Stocks had been selling off since mid September, the final Swoon occurred that Monday. John Templeton observed on Wall Street Week the following Friday, Monday was the end of the short term bear market. Watching that day the market had come back from the lows of the morning, I thought we might close down 50 points by day end. But at noon the heads of the NYSE and the NASD suggested they might just close the markets. That did it with everyone racing for the exits, a waterfall of selling into a non existent market took the Industrials down 500 points.

No one has yet advanced a convincing fundamental reason for that sell-off. The better explanation is that the market was a Fibonacci five years from its bull beginning, and in need of correction. Fibonacci was a Renaissance Italian mathematician who discovered the additive number series bearing his name, 1,2,3,5,8 .Each number is the sum of the previous two. The series bears a .618 relationship from one number to the next.


Stocks have not had any indication of sell off but are in a parabolic arc upward. Ralph Acompora has run out of room to paint the rally on the side of his barn. Circuit breakers have been created to suspend trading for various time periods if the indexes fall fast enough. The idea is to abate the panic in the meantime.

What could go wrong?

Trump seems determined to repeat the error of the disastrous Smoot Hawley tariffs of the 1930s. Trump is obsessed with NAFTA. Hundreds of Chambers of Commerce have sent letters of protest and economists do not agree NAFTA is a problem. Here in Texas, the trade route from Laredo to Dallas along I 35 regularly grinds traffic to a halt. Clinton signed NAFTA over the protests of trade protectionists. The WSJ ran an editorial last week showing just how hard ditching NAFTA would hit the auto industry. Over regulation here and improved conditions elsewhere have resulted in the move to Mexico. But that results in more Mexican wealth which is channeled back here. A tour of the luxury goods available in San Antonio department stores frequented by Mexican visitors is truly amazing.

The election in Alabama should not be close, but it is. Trump continues to pick needless fights with his own party members. In fact he needs more of them in the Senate to pass his agenda. Should the Democrats manage to gain a 51-vote majority, gridlock will resume big time. At that point Trump might as well return to his NYC Tower, he will be finished. Yet he seems oblivious to this obvious pitfall. In her column Peggy Noonan, no Trump fan, suggests he may go the way of Sarah Palin. Neither tariffs nor losing the Senate will improve odds for a bull market.

Volume contracted on the exchanges last week. Several analysts suggest that at least suggests a pause.

This is the seventh year of the decennial pattern. Often the Fall of the Seventh year sees a setback such as 1987 or 1997 or the top in 2007. That has yet to happen but the year is not over yet.


West Texas Crude has hit resistance at $52 and stalled. The XES energy service index advanced from $11.75 to $16.75. It has now fallen back to $14.90. To keep the bull idea alive it needs to find support and fast.

Energy producers are in better shape. Chevron hit a new high this week. Bell weather Apache APA bounced at $40, recovering to $42.

Natural gas has bounced back to $3.10 and needs a weekly close over $3.20 to re-instate the bull case.

I am not expecting a return to $44 oil but that won’t necessarily get the price moving up from here either.

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