I’ve been looking at the tops in 2000 and 2007, trying to draw comparisons. There are similarities in the way the market, once it drops below its long-term support (bottom of a rising wedge), looks like it’s in for a free fall.
|The 2000, 2007 and 2011 Tops
But, it eventually finds new support in a parallel channel, as I theorized a few days ago [Watch for the Rebound]. The bottom of the channel is drawn off a recent major high and the top is drawn off the two most recent peaks. It pencils in nicely for 2000 and 2007, although one could argue for a different placement, depending on the “degree” being examined.
In any case, if SPX bounces as I expect here at 1280, it will have set up a similar channel. The implication is that we will, indeed, start what looks like a new bullish move to the upside.
It’s not. Judging from past results, it’s a major headfake that will retest the former support line (bottom of the rising wedge) before resuming its decline. Where?
I expect the rebound to stop somewhere short of 1320 before the end of June — ideally Wednesday the 29th. It’s the intersection of the rising wedge, a trendline drawn off the May 2 top and the fan line from the Oct ’07 high [the Trendline That Just Won’t Quit.] And, here’s the obligatory mention of the end of QE2. Once we start down, we’ll complete the H&S; that’s been forming for six months (the channel bottom is the neckline).
Our first significant target is the Nov ’10 highs around 1225. We should get a bounce there that takes us back up to test the bottom of the channel somewhere between the middle of July and the middle of August [Sure It Works in Practice] before resuming the downturn.
Bottom line: we have about two weeks left to plan those masterful bearish trades, but there are still a couple of pennies left in the path of this steamroller.
|2011 Daily and Forecast|