The Cycle Of Seven

HYPE OR REAL?
According to the Hebrew calendar, 2015 is a Shemitah year. When you place this in the context of market performance during the past several cycles of seven, it has provoked a lot of speculation and doomsday predictions rooted in a seemingly convincing narrative.

I am referring here to the book "The Harbinger" by Jonathan Cahn, which has been on the New York Times bestseller list for more than 110 weeks. Evidently, the subject is a hot topic, given the general feelings of economic and political uncertainty around the world.

I have a database of the Dow Jones Industrial Average (DJIA) going back to 1915, so I decided to put Shemitah to test. I wanted to find a correlation between the Shemitah occurrence per the Hebrew calendar and the annual swings of the DJIA.

FIGURE 1: SHEMITAH YEARS DURING THE LAST 100 YEARS. Here you see what took place during the Shemitah years in the Dow Jones Industrial Average going as far back as September 1916.

MEASURING MARKET HEALTH
I used annual swings of the index values to measure the health of the market. The graph of annual swing bars for non-Shemitah and Shemitah years is presented in Figure 2. To comply with expectations, the Shemitah years should be marked by negative DJIA swings. Assuming the true Shemitah occurrences in a 100-year sample represent a probability of such an event, the probability p = (8/14)*100 (or eight negative swings divided by the total number of Shemitahs, which in this case is 14) is 57%. That is just slightly better than the flip of a coin. As a trader or investor I wouldn't find such a probability attractive.

FIGURE 2: NON-SHEMITAH AND SHEMITAH YEARS SINCE 1915. These Shemitah dates are as per those mentioned in The Harbinger by Johnathan Cahn. The Shemitah years should be marked by negative DJIA swings.

FIGURE 3: SEVEN-YEAR CYCLE RESULTS. Shifting the cycle of seven one year forward gave surprisingly good results: The average seventh-year swing value changed from -9.2% to -19.9%, and the probability of its occurrence during that seventh year improved to 71%.

FIGURE 4: OPTIMIZED CYCLE OF SEVEN SINCE 1915

IS THE MARKET HEALTHY?
My objective is not to prove or disprove the biblical law of Shemitah. My numerical verification is supportive of claims made by Cahn. However, the numerical results don't seem to coincide with the Hebrew calendar.

To reiterate the results of my analysis:

• The approaching, critical seventh year of the cycle of seven is Hebrew year 5776, which translates into the Gregorian dates of September 14, 2015--October 2, 2016, instead of the Hebrew 5775 Shemitah or September 25, 2014--September 13, 2015.
• I selected the year 2016 given its 71% probability of occurrence vs. 51% for the Shemitah 2015.
• An average of DJIA swings (computed on a sample of 100 years of the index records) equals -19.9% for 14 seventh years in the cycle of seven (Figure 3) while an average computed for the Shemitah years for the same time span equals only -9.2%.

FURTHER READING

• Cahn, Jonathan [2012]. The Harbinger: The Ancient Mystery That Holds The Secret Of America's Future, Charisma Media/Charisma House Book Group.
• http://woundedamericanwarrior.com/bible-prophecy-of-financial-crisis-on-Sept-13-2015/
• http://www.charismanews.com/culture/45296-jonathan-cahn-s-mystery-of-the-shemitah-tops-christian-prophecy-category-at-debut
• http://www.hebcal.com/converter/?hd=29&hm=Elul&hy=5733&h2g=1
• http://www.worststockmarketcrashes.com/stock-market-crashes/wall-streets-worst-market-crashes/
• http://en.wikipedia.org/wiki/Stock_market_crash
• http://en.wikipedia.org/wiki/Black_Monday_(1987)
• http://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States
• http://education.investors.com/investors-corner/709046-how-market-topped-in-1994.htm
• http://www.economywatch.com/economy-business-and-finance-news/A_history_of_world_financial_crises_07-14.html