Some Analogs to Consider (by MoneyMiser21)

By -

September and Q3 are officially in the books.

Summer bears are likely mostly happy, Dennis Gartman’s outlook on the S&P 500 notwithstanding.

There’s been a lot of talk about is this more 2011, or 2007/2000?

Calling Doc Brown. Fire up your flux capicators to 1.21 gigawatts, as we take a trip back in time.

1. SPX analog vs. 2011 on the monthly chart

The main correlation we can draw from these two is that September’s monthly candle was an inside bearish candle in both cases.

But in 2015’s case, we have more obvious sideways consolidation before the big drop. In 2011, we had a lot of tails on the candles.

The October 2011 monthly candle ended up becoming an outside bull engulfing candle which took out the lows of both September and August 2011, and then reversed up to close above September’s high.

Analog score: 2 out of 5

2. SPX analog vs. 2007 on the monthly chart

We see a CLEAR directional divergence in these charts.

Both share August candles with long bottom tails.

But that’s where the similarities end.

First, August 2007 closed positive from where it opened.

Second, the September 2007 candle closed positive, and above August’s candle as well.

There’s zero technical reason (in 2007) looking at the immediate chart to not remain bullish. It was only when you zoomed out to 2000, and saw the potential for a multi-year double top that a bearish scenario appeared.

Analog Score: 0 out of 5

3. SPX analog vs. 2000 on the monthly chart

Again, we find ourselves with another tough comparison.

While both September 2000 and 2015 candles closed bearish, their Augusts are vastly different. September 2000 was positive.

The other commonality between the two, the massive sideways chops of the YTD ranges going into August.

Analog score: 1 out of 5

Now some of my fellow technical based traders will probably be thinking, well the moving averages were probably showing similar things.

Not really.

Here’s a look at a two common MAs used on the monthly charts:

A. 10-SMA

1. 2000 vs. 2015

2. 2007 vs. 2015

3. 2011 vs. 2015

B. 5/13 EMA cross

1. 2000 vs. 2015

2. 2007 vs. 2015

3. 2011 vs. 2015

The bottom line, we can’t say what’s coming from looking at 2000, 2007, or 2011 comparisons to what we’ve seen from August and September alone.

But the big clue could be October. In 2000 and 2007, we saw a sell-off into the end of year begin. In 2011, we saw a rally into the end of the year begin.

Seasonality says to expect a rally into the end of year, and it should begin sometime before Thanksgiving (the infamous Santa Claus rally). So IF we see a sell-off in October, that should give the bears another clue that a larger crash is growing more probable.