The correlation played out pretty perfectly on Thursday, with section 22
following 2007 perfectly, gapping up and printing a big green bar that lifted above the previous day's high.
Below is a cleaned up correlation graph. I also broke apart some of the larger chunks of daily bars. They still match up very well. I also added the percentage size of the bigger moves and the corresponding gain to come lines up well with the channel/shoulder line that I've drawn.
Since this is implicitly based on EW Theory, I get to flip flop on my previous call. (HA!) My earlier post about the SPX not reaching 1150 might have been overstated. Well, we still might not hit 1150, but it appears that the recent movements in the QQQQs are all of a smaller magnitude than in 2007. So I'm starting to think it IS reasonable to trace through much of the rise to the right shoulder that occurred in 2007 without invalidating the H&S pattern. That extra time will enable the SPX to at least approach 1150 or 1140.
According to the chart, the expectation for Friday seems to be a slight rise above Thursday's high, only to drop down to Thursday's low without breaching it. Granted, in 2007 this occurred over 5-6 days so maybe Friday we'll just make a new high and sit there all day. After all, it IS the Friday before Memorial day.
But if it all happens in one day, it will be the perfect setup to piss off as many people as possible: Bulls will get trapped in the morning as we make new highs and bears will be caught in a bear trap at the EOD. Notice that big gap open that occurred after the red bars.
At least, this is all what happened in 2007. Let's see if the pattern repeats.
