Analog analysis points S&Ps to 1,500

 

 

The current stock market is an presently an analog to late 2010

All forms of technical analysis are variations of analog studies. Technical analysis, at its core, is based on the fact certain market behavior profiles repeat themselves.

It appears to this author that the current stock market (based on the S&P futures) has its analog in late 2010. The analogous components are as follows:

  • The market in late 2010 and now followed four major technical developments:
  1. A signficant market high (Apr 2010 and July 2011)
  2. A sharp break, leading to the conclusion by many market observers that the 2008 bear trend would resume (May – Jul 2010 and Aug 2011)
  3. A period of severe volatility leading to little price change (May -Sep 2010 and Aug – Dec 2011)
  4. A gradual turn up in prices – price behavior characteristic of “climbing a wall of worry” (Oct 2010 – Feb 2011 and Jan 2011 to ???)
  • On a daily basis, the markets in late 2010 and now display overbought readings using the traditional overbought/oversold indicators such as RSI, Stochastics, etc. In fact, the Stochastic readings of both time periods were/are at levels characteristic of a market top, as shown on the following two charts.

 

After reaching overbought readings, the market in 2010/2011 had a steady advance of 16% into the Feb 2011 high. If the analog behavior continues, a 16% advance from the current level of 1,300 in the S&P would produce a move to 1,500.

A weekly chart showing both analog years in perspective is shown below.

The current market is presently an amazing analog to the late 2010/early 2011 time period. If this analog continues the S&Ps should grind steadily to 1,500 over the next four to five months.

I must add the caveat that seemingly analog years can stop being analogous at any point in time. It is possible that the current overbought readings in the S&Ps could lead to a sizable market correction. Yet, I believe it is the market’s fear of just such a correction that will continue the analog.

As a final note, I find it facinating that the S&Ps are presently at almost the same level they were at when I became very negative on the market in July 2010. My initial short was at 1285, pyramided at 1255 and covered on Aug 8 and 9.

Markets: $SPY, $ES_F

 

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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