Were you active in the stock market in 1987? Perhaps you were an active investor at the time, or an investment advisor, broker, or market maker. You may recall that stocks had seen a prolonged rise since 1984, with a streak of flat prices during the latter half of 1985 followed by a fairly steep rise in 1987, culminating in a peak on August 25. From then until early October, prices were essentially lower, then rose for eight days to a higher close on a white candlestick on October 1, meaning a “higher” day. The indicators available to us today, when applied to the price condition at the time, show that their readings were reaching a peak; and that they actually peaked on October 2 (one Friday) and October 5 (the following Monday).

That Friday, October 2, a special type of reversal candlestick pattern emerged on that day’s chart: a “Doji”, in which the opening price and the closing price were almost the same. (The word “Doji” is both singular and plural). It was generally not known in the “West” at the time, but in Japanese trading tradition it was well understood that when a Doji appears at the upper end of a price increase, it constitutes a warning of a possible trend reversal.

The next trading day, Monday, October 5, another Doji appeared, the opening price and the closing price of the day were almost the same again. The uniqueness of these two Doji lies in this: as between the two, one compared to the other, the opening prices and the closing prices were almost the same.

While not understood in “the West” in those days, this double Doji pattern (the two days considered together) was enormously bearish. It was actually a form of Triple Doji, which I have given the name “Unique Triple Doji”.

The day after the Triple Doji appeared, the Dow Industrials fell 92 points. (To keep things in perspective, keep in mind that the Dow was around 2600 at the time.) Over the next eight days, ending on Friday, October 16, the Dow fell another 302 points. Traders could have exited the market at any time during those eight days.

The following trading day, Monday, October 19, became known as “Black Monday.” Prices were reduced at the opening; And when the carnage for the day was complete, prices closed at 1,738.70, for a total decline of 901.5 points, or 34%, from the close of October 5, the day of the second Doji.

People who were active in the market in those days and who are still with us now remember that Black Monday “came out of nowhere” or “came out of nowhere.” That was obviously not the case at all: there were nine trading days after the appearance of the Unique Triple Doji warning within which to exit the market before Black Monday. The mystery is why someone would have waited so long to get out.

Observers tried to find an external “reason” for the drop. One has never been found, not then and not even after all this time since October 1987.

Now let’s take a look at the market events in April 2010 to see if we can find any parallels with the events of October 1987.

The market had been on a prolonged rise since early March 2009, in what became known as the 2009 Grand Rally, which was an upward correction in an underlying bear market that began in October 2007. The rise had occurred with some zig and zags until, on April 26, 2010, prices rose and fell precisely at the 61.8% retracement level of their decline since October 2007, which was a logical “Fibonacci” point in the that a ceiling and a reversal could be expected. (The pattern of the day was a Doji). The next day, April 27, a high black candle (signifying a bearish day) appeared on the Dow’s daily chart, bearishly “gobbling up” the “real bodies” of the price bars of the eleven trading days. preceded. This was a hugely bearish reversal pattern. I have never before seen a “bearish engulfing” pattern involving up to eleven Royal Bodies. It was a powerful pattern that warned of the possibility of a dramatic price drop very soon, and that its effects would be long-lasting.

Two more bearish engulfing patterns (each with only two price bars, one white and one black) emerged in quick succession. Then on May 6, just the seventh trading day after the high black candle appeared, the Dow opened about 5 points below the previous day’s close. The 5-minute chart for that day shows that, from mid-morning onwards, prices generally remained level until around 1:30 pm, when they began to slowly fall. The pace picked up a bit until about 2 p.m., at which point the pace picked up, seemingly exponentially for almost every successive five-minute period, to a final dip that bottomed out around 2:30, and then, within minutes, the field was reversed and closed. that period of 5 minutes approximately at the price at which it had started. At the low (of that terrifying 5-minute period and day) prices had plummeted 994 points, or 9.15%.

In the graph, the representation of the event is reminiscent of a roller coaster car, having been stopped by the first incline to the top of the first big drop, passing over the ridge, slowly turning downward and then rapidly accelerating shouting. to the bottom.

I cannot find any candlestick patterns that can explain the decline. I can only point to the massive bearish engulfing pattern in April, which was followed almost immediately by two additional two-bar bearish engulfing patterns, as accurate predictors of the decline.

To date, researchers are still looking for an “external cause” for the decline. They haven’t found one yet. If the 1987 Crash case to date is any guide, they may never find one.