Something just happened in the stock market that was a precursor to the 1987 crash
The Dow Jones Industrial Average has declined 8 of the past 9 days, including the past 7 days straight. The index has only given back 1.5% in that time, but the consistent downward moves do not portend good things on the horizon.
According to Tom Leveroni of Nautilus Investment Research, this is only the 10th time since the start of the 20th century that the Dow has had such a downward streak and it historically has had negative connotations.
"Asterisk aside, this pattern has not been good historically," said Leveroni in a note to clients Wednesday morning. "The Dow closed lower 1 month and 1 year later in 6 of the 9 occurrences since 1900 with 5 signals precisely marking cyclical tops (1901, 1919, 1966, 1976 and 1987). "
The historical average loss for the Dow after a 8 for 9 day losing streak over the last nine times this happened was 0.94% in the next week, a loss of 4.42% over the next 3 months, and a 6.39% loss over the next 6 months. The worst such loss was a 31.06% drop after a signal on November 14, 1919.
Leveroni, however, also believes in the contrarian's constant refrain: this time it's different.
"For now, we are merely reporting this observation. For now, it does not trump the many bullish factors we have cited over the past few months and we still expect any further decline here will be a buying opportunity," Leveroni concluded.