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Foreign Sloper Correspondent Serge sent me a fantastic analog today. Here's the QQQQ from a decade ago:
And here's where we are at presently:
They even had their own "flash crash" back on April 4, 2000, which was the day Microsoft did an earnings warning. Fascinating stuff!
The move off 1040 SPX this week was a familiar sight.Since the beginning of October last year there have been six previous moves up from 1040 or below and it is worth noting that not one of those failed to make it to at least 1099 SPX. That's what I'm expecting to see this week as well.
I was thinking about Trader1's BAR (Big Ass Range) yesterday and looking over the SPX over the last twelve months we have spent a majority of the last year, and over ten of the last fourteen weeks, trading in the range 1040 – 1105 SPX:
I'm wondering whether we will see a major break out of this range anytime soon. The bears are expecting a significant break downwards, and the bulls are expecting a significant break upwards, but it's possible that we could just chop around here for quite a while longer, trapped in this range between the devil (Fed threats to intervene if assets prices fall) and the deep blue sea (a US economy that is failing to produce much in the way of good news).
I was talking a couple of days ago about the possibility that the markets saw a technical low (the bottom for several lead indicator markets) in late May, with USD peaking slightly later in early June. One of the things I was thinking of was EEM, the Emerging Markets ETF, which saw the low in late May and diverged sharply from SPX from there. It is interesting to see on the daily chart that EEM has just bounced at wedge support from that low:
There are several commodities, currencies and markets that are now close to their April highs. Copper is one and another is AUDUSD. I posted a right-angled and descending broadening formation on AUDUSD back near the SPX April top with a suggestion that it looked shortable for a move down to the 81.5 to 82.5 area within that pattern. You can see that post here. Since making a double bottom near 81 in late May & early June, AUDUSD has moved back up towards the top of the pattern, with a target in the 93.85 area and it looks very likely to make it to that target. The pattern may break up from there but if it doesn't then the next downside target will be in the 72.5 to 75 area, so it looks like a very interesting short from the next hit of the top trendline.
In the short term on ES / SPX, yesterday's close raised the possibility that we have just completed the head on an IHS indicating to 1123 SPX. I'd be disappointed to see a significant pullback today to make the right shoulder, as a move to that target would break the upper trendline of the main declining channel on SPX from the April high, which will be in the 1105 SPX area early next week. A break of that trendline would blow a huge hole in the bear case over the next few weeks:
We have a rising channel on ES that I'm expecting to hold today and tomorrow. The lower trendline of that channel will be at about 1086 ES by the close tomorrow, which fits with the sideways to up chop that I'm expecting to see until then:
I've been receiving the (free) daily charts from Clusterstock Chart of the Day for a long while now and they often have something worthwhile to show. Yesterday's was very interesting showing a strong positive bias for the week before Labor Day, with a particularly strong bias for the first day in September. I'm expecting to see a short term swing high tomorrow or early next week followed by a sharp retracement so it was good to see that COTD's chart is showing a significant negative bias for next week. You can see the full COTD post here:
Leisa here, reminding you that it is NOT too late to join in the fun of Slope-Fest East in Myrtle Beach. You can read about it here http://www.slopefest.com/2010/09/slope.html or e-mail Iggy here: iggyslopefest (at) gmail (dot) com
One of the very few unpleasant aspects of doing a widely-read blog is that, from time to time, I get a nasty email. Here's one I got yesterday:
from Mark Everett <markeverett00@yahoo.com>
to trader.tim.knight@gmail.com
date Sun, Aug 15, 2010 at 12:10 PM
subject 1937-42 Scenario
Tim,
You're a naive idiot if you think the market is going to exactly repeat the 1937-42 pattern, and the way you've "counted out" the moves and presented them in your blog says you're basically expecting an exact repeat. This just shows that you're an example of how moronic most traders are nowadays, looking for a pattern on a historical chart and lining it up with today's chart and saying "that's the future." I'm as bearish as anyone and have been for over 10 years, but the "Big Picture" section of your website is idiocy and show that you could use a class in logic.
Mark Everett
I guess I should be flattered that Mark took the time to create a new email address just to send me a nasty note (this is a common practice among trolls), but this does raise a point I've been meaning to make about the analog.
I've been very vocal about the 1937-1942 analog, but some might wonder what happens when "1942" is here (e.g., the bottom, which I imagine is going to be somewhere between 600 and 650 on the S&P).
The short answer is: we'll be in a different market then, and I have no idea what will be next. I consider the analog to be useful for this bear market; after it's done, I'll have to think hard about what to do next.
Because the general outline of the analog has held up so well, I'm keeping my faith in it until it is completely broken (which might never come; we might make it all the way to the terminus of the analog without missing a beat).
I have, along the way, been updating my Big Picture page, and I've kept all the "amendments" in there, which includes plenty of misfires. But The Vision has kept its course beautifully, and I am looking forward to the next big move down.
Last week I did a "zoomed-in" view on my chicken-scratch-of-the-future. Today I offer the long-term drawings I did at the same time. I am staking serious money on this next move.
Over the weekend, I printed out a bunch of charts and checked in with my 1937-1942 analog. It seems to be playing out as beautifully as ever. I'll share a couple of the charts here. This is a close-up of the period in the late 1930s that I am following:
For me, 2010 is all about the move from "L" to "M". I don't know if we are at "L" yet – – it could be as high as 1170 on the /ES, which is nearly 50 points higher from current levels – – so there's plenty of room for the bulls to run before this analog is invalidated.
Below I've tinted in cyan the range where "L" may terminate. Because I don't know when it will happen, I am keeping stops very wide. Once we start falling, I'm going to hang on tight until about 925 on the S&P, at which time I will cover everything.
Waiting for "L" is a drag, but no one is going to ring a bell an announce a nearly 20% drop is about to take place. I want to be ready for it when (OK, if and when) it comes.
