Deja Vu?

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?

Forecast alert!

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.

2000 Weekly

2007 Weekly

2011 Weekly
2000 Daily
2007 Daily

2011 Daily and Forecast


Deja Vu? — 4 Comments

  1. I think we're at the equivalent of November 26, 2007. As long as we stay above 1272 or so, we're just retesting the bottom of the channel. IMO, this is a bear trap — only in the short run, of course.