The stock market crash on Black Monday – Oct. 19, 1987 – was the worst one-day fall in history. The Dow Jones Industrial Average plunged 508 points – a 22.6% drop, while the Standard & Poor’s 500 index lost 58 points for a loss of 20.4%.
Such a loss today would slice over 3,200 points off the Dow and about 365 points from the S&P 500.
And while no one can predict the markets for certain, the chart lines for the two bull markets have given many market analysts pause.
“The bull market that started in March 2009 is now up 169% through Friday. That’s nearly step for step with the rally that began in 1982,” said Money Morning Chief Investment Strategist Keith Fitz-Gerald.
The reason people are getting worried now is that the Black Monday stock market crash happened 1,311 trading days after the start of that bull market. The current bull market will reach that milestone approximately one month from now.
But Fitz-Gerald isn’t quite ready to hit the panic button.
“With more than 60% of today’s trading driven by high-speed computers and big dark pools that are beyond our view, another ‘Black Monday’ is clearly possible,” Fitz-Gerald said. “Whether or not it’s likely is a very different issue. The far more probable scenario is a meaningful stock market correction of 5% to 10%.”
That’s a view shared by Jim Paulsen, Chief Investment Strategist at Wells Capital Management, who raised Wall Street heart rates by commenting on the chart pattern in a research note last week.
“I would suggest that history won’t repeat, I don’t think we’ll have a big collapse… but could we rhyme a little bit? Maybe sometime in the next several months, good news on the economy might become bad news for the market like it did in 1987,” Paulsen told Yahoo! Breakout.
Like Fitz-Gerald, Paulsen believes any correction would be closer to about 10%.
Still, some observers dismiss the matching chart patterns as a meaningless coincidence – but there are circumstantial similarities as well…
How a 2014 Stock Market Crash Would Resemble the 1987 Crash
What grabbed Paulsen’s attention was that both bull markets began in similar environments.
“Both of these bull markets started in an era of utter disbelief in the future,” Paulsen said on Breakout. “And both bull markets have chronically climbed a wall of worry. But in 1987, about five years in, that wall of worry started to change, and people finally started to decide that we were in a sustainable recovery. And that’s kinda what’s happening here today, about at the same time, in this bull market.”
One other similarity the two bull markets share is unusual longevity. Historically, few bull markets survive past the five-year mark.
The current bull market hasn’t seen a correction of 10% or more in 30 months, while the average is 18 months.
“A market correction is long overdue and would be a welcome sign that things are, in fact, working normally,” Fitz-Gerald said. “People forget that nothing goes up forever. Markets have to buy and sell for there to be price discovery. Up and down is part of the process.”
That means investors should start preparing now to take advantage of any stock market crash that might happen in 2014.
Read the rest of this post Black Monday Stock Market Crash Returns to Haunt 2014, first published by Money Morning – Only the News You Can Profit From.
Wall Street Examiner Disclosure: Lee Adler, The Wall Street Examiner reposts third party content with the permission of the publisher. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler, unless authored by me, under my byline. I curate posts here on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. Some of the content includes the original publisher's promotional messages. No endorsement of such content is either expressed or implied by posting the content. All items published here are matters of information and opinion, and are neither intended as, nor should you construe it as, individual investment advice. Do your own due diligence when considering the offerings of information providers, or considering any investment.