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Wednesday, June 8, 2011

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


  1. great analysis pebble, your posts are always interesting. keep up the great work..

  2. Thanks. As always, please feel free to push back on these ideas, folks. That way, we all learn from each other.

  3. 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.