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I began my study of the Titanic Syndrome with the 1965 stock market. The DJIA had reached an all-time high of 939 on May 14, 1965 (Figure 5). Four business days later, on May 21, the second half of what was to become the Titanic Syndrome appeared when more stocks on the NYSE made new yearly lows than new yearly highs. The stock market apparently was forming a major top. On June 2, the NYSE advance/decline ratio hit 1:5 (196/1000), exceeding what would become the minimum test of 1:4. The market declined until an amazing trio of extremely strong signals appeared on one day, June 28. These patterns became the foundation of my stock market analysis and have recurred over and over again during the past 23 years.

First in this unusual three-way pattern was a 10% drop in the DJIA from its 939 high to 840. Then, the number of new highs on the NYSE fell to zero and, finally, the number of NYSE advances on June 28 was one-tenth the number of declines.

The 1:10 advance/decline ratio on June 28 meant the market was clearly oversold. In an oversold market, traders who have hung on to their short positions are a bullish influence because they must cover, or buy back, what they sold short. As a result, the DJIA rallied slightly two days later on June 30. The real coup de grace was not this rally, but a complete reversal of the NYSE advance/decline ratio that same day.

The market on June 30 switched abruptly from a 1:10 advance/decline ratio on June 28, to a 10:1 ratio that exceeded even the 9:1 ratio that I have found to be the ultimate advance/decline signal that a market has bottomed. These two contrasting advance/decline ratios need not occur at the same time, but they have occurred at many major market bottoms. From that point, the market rose until it hit another all-time high on February 9, 1966.

Closer to our time, as early as August 1987, the 3-D concept, Titanic Syndrome and their confirmation patterns began to forewarn the stock market's slide into the October 19, 1987 crash (Figure 6). The patterns also recognized the October 19 bottom in time to reinvest.

The sequence of patterns began in mid-August with a 3-D divergence—the AMEX and Dow Transportation Average both reached new highs between August 12 and 14 while the Dow Utility closed far below its all-time high. During mid-August, T-bonds also diverged against municipal bonds and Eurodollars.

The first half of the Titanic Syndrome appeared on August 25, the day the Dow Industrial reached its all-time high. It was followed, six trading days later on September 2, by the telltale excess of new lows on the NYSE—the Titanic was about to sink again. Confirmation signals rolled in quickly after that. By September 2, NYSE declines had been over 1,000 for four out of seven days—a strong topping pattern. In the midst of this, on August 28, the NYSE advance/decline ratio was a 1:3, a sign of market weakness and very close to the 1:4 confirmation signal.

On September 8, two very strong signals appeared simultaneously. The DJIA posted its fifth consecutive day of lower closes. The NYSE recorded its second consecutive day in which declines were over 1,000 and the advance/decline ratio hit 1:6—incontrovertible confirmation of the Titanic Syndrome's warning. During this same time period, the Dow Transportation and the 20 New York Bond averages also had closed down for at least seven days in a row.

The market did not immediately plummet after September 8, however. The 1:6 advance/decline ratio on September 8 was even higher—1:14—on an intraday basis. This temporarily oversold condition gave rise to a brief rally, but the market could only sustain four consecutively higher closes, not the five that are required to offset the earlier five lower closes. The market clearly was on a downhill leg and it was time to concentrate on finding a bottom.

On October 16, the falling market signaled that it was in a selling climax with a NYSE advance/decline ratio of nearly 1:16. If this were not enough, on the next trading day, October 19, the ratio reached an unprecedented level of 1:38.

T-bill futures, which had made their lows on October 15, rallied sharply on the close on October 19 while T-bonds made f another lower low on October 19—a perfect divergent face. The patterns gave just enough forewarning to place orders that had some hope of being filled in the mass confusion that ensued, before the recovery had gotten very far.

In the after-crash markets on October 19, however, there was a tremendous rally in interest-related securities and it was announced that on that day credit had been loosened to allow market specialists the financing they needed to prevent a complete stock market failure.