Too Far, Too Fast: Oct 24, 2011

In looking at the 2011 v 2008 analog, it’s obvious we’ve advanced at a much faster pace these past two weeks than the analog would suggest.

From a price standpoint, we’ve very nearly reached our wave 2 target a good month or more early.  We can debate the causes — everything from “animal spirits” to expectations of a Euro miracle.  It’s also possible that the analog I’ve been following since May has simply become too well known.

I have no idea whether someone else noticed it before I.  But, in August, EWI started talking it up.  And, just this morning, I saw a chart in a recent Demark interview that looked oddly familiar.  It’s entirely possible folks have taken such a shine to it that they jumped the gun, trying to get out in front of the last rise before the downturn.

There I go again, saying “downturn” when I mean “crash.”

Thanks to the speed and distance of this rise, I get to redraw the internal channels of the 2011 pattern.  One fun discovery is that the revised slope is…wait for it…the same as the 2007/8 top.  At least, it could be.  The reality is that there are dozens of ways to draw these channels.

But, given the similarities between the two tops, I think it makes sense to look for similar channel lines, too.  Take a gander.  First, the original:

Note the channels in 2011 are steeper than those is 2007/8.  That made sense when it appeared that wave 2 would be bouncing back from 1040.  Here’s what we got instead:

A little closer view…

And, the close up.

If you look closely, you’ll see there are two paths from today’s close.  The yellow line starts down right away, forming a real B wave instead of the sissy B wave we had last week.  It then takes its sweet time forming a C wave that ends in December — maybe around 1285. 

The purple line wastes no time.  Like the yellow line, it reverses this week — maybe even tomorrow around 1266, but doesn’t stop running until Bernanke is reduced to a quivering blob of pale, green jello and Merkozy’s love child springs from the womb shooting stardust and rainbows from its fingertips. 

Personally, I’m leaning toward the first option, reaching 1266 Tuesday or Wednesday, at which point the whole Euro-agreement should be ready for the shredder.  Or maybe we just gap down from here.  Our high today was within $1 of the .618 (from 1370 top to 1074 bottom) and within $2 of the Jun 16 low.

I show the two courses coming back together in Jan-Feb 2012, doing a side-step for a month before heading down to complete Minor 3 of Intermediate 1 at around 650.  The SMA 200 is around 1274, and the put-call ratio is back down to .53 — very toppy.   The RSI, stochastic and McClellan Oscillator are all looking bearish.

More later.


Too Far, Too Fast: Oct 24, 2011 — 3 Comments

  1. 1040 is a great alternate target. I'm just basing it on how the 2007/8 top stuck to the larger (yellow) channel for a while before finally falling out. That channel, which is actually a regression channel for the period Apr 07 to Sep 08, captures the moves of the last top exceptionally well. So, I'm inclined to give it the benefit of the doubt in this replay. If the slope goes south a la August, I'll be leading the cheers.

  2. Pebble,

    You are right. I have read in multiple websites comparing the same chart of 2008 and now. I guess it is an open secret now. What differs is what happens after the first "downturn", some predict a lower low than1075, then go on to rally to new high. Some say we will not see new low for the year. Who to believe??? I do think your analysis is very sound. The steeper the climb the steeper the decline. Imagine the pink line scenario plays out, it will certainly scares the living daylight out of many longs. Kind of wish to see that hehe But then unless some catastrophe strikes, I do believe the yellow line scenario seems more probable. But then the market likes to surprise us with the least expected scenario. We will see…