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Full-speed ahead on its maiden voyage and presumably protected against disaster, the Titanic sank in the chilly North Atlantic Ocean, shattered by an undetected iceberg. In the stock market, another kind of iceberg awaits at every major market top and has carried unsuspecting traders to similar ruin at least a half dozen times in the past 22 years.

When I noticed this phenomenon in the fall of 1965, after studying the records of the Dow Jones Industrial Average (DJIA) May 1965 major top and June 1965 low, I coined it the Titanic Syndrome. A close friend, a graduate of Caltech, told me at the time that the odds against the Titanic Syndrome repeating itself again and again were astronomical. Since then, it has proven itself to be a consistently accurate warning of every all-time high.

The Titanic Syndrome is deceptively simple. Two statistics, printed daily in the financial press, tell you whether the iceberg will wreak disaster. You know you are on board the Titanic when the DJIA hits an all-time high for the year or rallies 400 points and—within seven trading days, before or after this DJIA high—the number of yearly lows on the New York Stock Exchange Composite Index (NYSE) exceeds the number of yearly highs. (The NYSE defines yearly as the past 52 weeks.)

This excess of NYSE lows is the iceberg that presents grave danger to any trader who blindly believes the new DJIA high, based on 30 industrial stocks, will lead to higher prices throughout the market. After the Titanic Syndrome has appeared, the DJIA may rally slightly above its top, but the other averages, especially the Dow Jones Utility Average (DJUA), do not make new highs. It is all but certain these averages and indices are peaking and ready to drop.

Usually after the Titanic Syndrome, all major averages/ indices will drop at least 10% from their highs. The Syndrome not only warned of the October 19, 1987 stock market crash, but also the significant market retreats from all-time highs in July 1983, April 1976, January 1973, February 1966 and May 1965 (Figure 1). In each case, the NYSE's new lows exceeded new highs within seven days of the DJIA's new high. Actually, the Titanic Syndrome is one very accurate warning signal in a series of patterns that detect stock market tops and bottoms early enough to trade on the information. The entire system can be typed on one sheet of paper and, like the Titanic Syndrome, none of the patterns requires extensive recordkeeping. They are instantly recognizable from any five-day stock market summary that includes DJIA and NYSE activity plus daily price charts of the popular market averages and indices. I find that The Los Angeles Times business page and The Wall Street Journal supply all the data I need.