Back on July 6th, in a post titled “No Bottom For SPY“, I used a “broadening” pattern to correctly predict that the S&P 500 would fall through its March low. Here is the chart that I used back then (click to enlarge). The pink lines outline the broadening pattern:
Here is an updated chart. (The blue lines on the charts labeled 126.09 highlight SPY’s intra-day low on March 17th.) Look how it developed! The lower line of the broadening pattern (in pink) set the slope for SPY’s decline right down to the bottom on July 15th!
Now look at the new broadening pattern (in black) birthed on Tuesday of this week as SPY burst back above the March low. One of those black lines will likely set the trend going forward. Will it be the top one or the bottom one? Will plunging oil send stocks up to the top line? Or will the crumbling economy send it to the lower line?
If you know the answer, please post in the comments. I am agnostic. I am 99.9% in cash. My only position is a handful of Apple puts that I tried to sell at the close but didn’t get the trade in on time. If I had a book to talk, I would think harder, but since I don’t you’re on your own!
Matt,
Bottom line for me is if 1240 holds I’m going long for a possible swing trade up to the 1300′s… and if it sells off after I buy.. Well, dinner for the Bears on me again I guess…
In my opinion 1240 should hold, but the Market doesn’t usually care about my opinion. LOL…
Is this current Bear Market rally over? I say no for now.
Rich is right… 1310 here we come …various fib retracements and the 50 dma to boot.
There’s nice symmetry here too – market bottomed at 1200, made quick ~80 point move to ~1280 and then gave back 3/8 to ~1250. Today was a pit stop.
1310 and THEN get bearish again.
Rich,
I accidentally clicked on the delete link for your comment in “REALLY Dumb Money” and WordPress doesn’t have an un-delete feature. Would you please post your book recommendation again? I can’t recall the title and I want to order it.
Matt
well this has certainly been the strangest trading pattern i’ve ever seen although a few things make sense. on tuesday, stocks seemed destined to go down 300 pts after numerous brand name companies shi# the bed, but the dow rallied 145 pts to my amusement. i thought there would be a big sell off on wed but the xlf rally and lower oil held the mkt up. this was prob the best indication that today would be a bloodbath if oil was up —-> yesterday, the dow couldn’t make a strong gain with oil down $4 and a huge move in financials. we knew the financials would rally as they did after the BS bailout, but this rally was overdone. i think the mkt goes much lower with big losses in the QQQQs. i think today was a big wake up call for the BULLshitters like kudlow, kneale and every other idiot on cnbc. however, oil is the wild card so everything depends on black gold.
We did have lower volume today on SPY, QQQQ, XLF, and IWM, so maybe today could be looked at as a consolidation of the rally. OTOH, it took four days of struggle for SPY to recapture the March low, and it has to be quite a jolt for the bulls to have that hard-won battle reversed in a single afternoon of panicky selling.
Today might also mark the end of the period where the market was willing to ignore bad news.
Next Friday is BLS jobs-day, and it would take a lot of courage to be long in front of that. Maybe the market can get all of its rallying out of the way before then.
Matt,
The book is “The (Mis)Behavior of Markets” by Mandelbrot.
Nicholas Taleb reviews the book here:
http://www.fooledbyrandomness.com/mandelbrotandhudson.pdf
Enjoy!
I think we test 1230-1240 1st before we see 1310-1330