Of more interest is the comparison chart looking at 2007. We all were younger and better looking back then. The recent action has felt a lot like September-October 2007. That was the M Top in the markets, the grand top, the all-time market high ever at SPX 1576. The similarities to now are remarkable independent of the sentiment comparisons. Back then it started to be a given that markets would go higher every day, at least it appeared that way, no one had any doubt, like now, day after day of upside, the SPX is now up seven days in a row. There was a renewed retail interest in stocks back then like now with Joe Sixpack now putting his Christmas money to work in the markets.
But sticking with the charts, the first top for the M Top occurs with negative divergence and overbot conditions spanking price downward. The selling volume increases as the move down occurs off the first top. Price falls into a falling blue wedge where positive divergence bounces price. Price moves up into a rising wedge and doji top. Along the way up to the second top for the M Top, there is a large upward thrust of price. Also, buying volume increases on the way to the top as the last minute retail investors jump in afraid of missing the top. As the second top is formed, price is above the 20 MA above the 50 above the 200. In 2007, once the roll over occurred, the 20 MA crossed down thru the 50 MA confirming trouble ahead. The second top was formed with negative divergence in place which created the spank down. Looking at the time durations, the first top formed over about six weeks time with a flattish nature, then the down leg was about six weeks, then the leg up to the second top was about 8 weeks time, right now we are at about 8 to 9 weeks time for the rally. Interestingly, this entire paragraph exactly describes both of the charts. Do you think history repeats, or perhaps at least, rhymes? Tomorrow will be interesting to see if the doji creates the start of the move lower.
Projection for the SPX is to roll over, perhaps with a little stutter step across this 1485-1505 area then down ahead. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.
KS,
ReplyDeleteI understand your comparison, but I am hesitant to draw the same conclusion, not because I am experienced, but because I am not. But one thing I have observed is that the RUT2000 leads markets up, and down. In 2007, you will see that the RUT2000 started losing strength before the SPX. But in 2013, the RUT2000 is still leading the pack. I am hoping that your experience will shed some light on this major difference in the RUT btwn 2007 and today, 2013. Would the fact that the RUT2000 is still leading indicate that this rally is still young? Other factors like Full Moon Jan 29 and AAPL major suppt and measured move are both at 445, lend themselves to seeing another leg up despite the massive oversold conditions and comparisons.I believe the COMP and NDX are the two indexes that need to play catch up, or maybe they won't. thanks KS!!
Yep, the small caps only made matching highs in October 2007 and rolled over helping lead the downside. Now the RUT is up at new all-time highs. When looking back at history, it is a guide only. The small cap action now may be largely due to unraveling of massive short positions, in 2007 they were reaching an exhaustion phase. Tech and small caps lead markets so for example, look at the XLK right now, far below the September 2012 highs exhibiting behavior more similar to the small caps in 2007. The seasonality factors are only useful to gauge the background current of the markets so view them wit a grain of salt. Watch tech and the banks. And, as always, negative divergence rules the day. Market tops are an event, they take some time to roll over.
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