(Editor’s Note: below is a post that Retracement Levels submitted. For reasons that will become clear as you read it, I’d take issue with some of the points made, but I frankly think there is plenty enough room here for divergent opinions. I appreciate the post. – Tim)
Since the first time, I have been on this blog, in 2006, (at the time it was hosted on blogger), I have always been mesmerized by the observation of the desperate attempts that all the various market analysts, gurus and forum posters made at predicting long term trends in Bull and Bear Markets.
Most people seem to be convinced that if you analyze a very large amount of information, including all sort of possible market predictions (plus your personal bias, never forget that, and some astrology and psychology to sprinkle it all up), they will come up with a verdict about where the market is headed.
It is a truly entertaining show.
Here’s a novel way to look at it:
Well this has certainly been an impressive move. I wrote a post yesterday looking at the stats for daily and weekly 3SD (three standard deviations from 20 period MA) punches, and the last time that a weekly punch through the 3SD lower band like the one we saw on Friday was at the collapse of France before the German attack in May 1940. If we close down hard today then this decline will, in this respect, have done what the declines in 2000 (Tech crash), 1998 (Russian crisis and LCTM failure), 1997 (Asian crisis), 1994 (bonds crash), 1987 (no clarification required I hope), and others all failed to manage. You can see that post here.
That said, we are a long way from today’s close and on the four equivalent punch closes through the 3SD daily lower band, three of those went lower the next day, with AM declines of 1.8% (equiv to 1934), 2.5% (equiv to 1920) and 3.7% (equiv to 1897). All four closed up with rises ranging between 3.2% and 5%.
Well that was an impressive trend down day yesterday and a lot of technical damage down. I am now officially impressed, and while I had been thinking we might put in the retest high just before the holiday weekend, Greece has pulled that forward a few days and in all likelihood both the 2015 high and the retest are now in the review mirror. This would be a good time to pull together a few reference posts to show where I think we are here.
The first post is from Monday 2nd February where I confirmed that the January close on SPX met the criteria for some very bearish long term stats suggesting very strongly that the best case for SPX in 2015 would be a flat close, and the worst case a large decline. You can see that post here.