Analog Alert: October 9, 2012

Everyone loves analogs.  Sometimes they play out precisely with enormous profits as in July 2011 [see:  Why Analogs Work.]

While, sometimes they’re merely pretty close, providing accurate price targets even when the timing isn’t exactly right, like this one from April [see: Analog Details.]

Whether on a grand scale or not, analogs often predict price swings the rest of the investing world can’t see coming.  When we’re able to properly position ourselves in advance, we can profit handsomely — or at least increase our chances of avoiding disaster.

A few weeks ago, I observed that the three QE-infused equity rallies seemed to be somewhat proportional [see: The World According to Ben.]

It just so happens that 1566 is a stone’s throw away from 1553 — the Crab Pattern 1.618 extension of last year’s plunge from 1370 to 1074.  It also happens to be the apex of the rising wedge we broke in April.

  • QE 1:  666 to 1228 = 562 points.
  • QE 2:  1010 to 1422 = 412 points (412 = 73% of 562)
  • QE 3:  73% of 412 points is 300 points.  1266 + 300 = 1566

A triple top has long been among my leading end-of-the-road scenarios for the 2009-2012 bull market (recall that Oct 2007 topped out at 1576 and March 2000 reached 1552.)  While the above calculations don’t — in and of themselves — make for a useful analog, they started me down the path to one that I think has a decent chance of playing out very soon.

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