Sometimes the more you stare at something the less you see. We have all looked at the 2008 chart over and over. I once again took a look at the 5 year weekly SPX chart and something kind of stood out. The closer I looked the more a few patterns stood out and then the kicker the near exact percentage changes in various moves.
I tried to make the chart below as simple as possible. Please click on the chart and first look at (1) the head and shoulders top then (2) the rapid moves lower followed by series of lower lows. Notice the similar moves first from the highs of the head and shoulders pattern to the first low (19.4% in 2008 and 19.6% in 2011) and the bounce from the second low to the next high (14.6% in 2008 and 14.8% in 2011).
The final 14.6% rally in 2008 lasted a number of week but notice how it back and filled versus the current 2011 rally of 14.8% has just been up with no back and filling.
I see the above patter similar from a pure technical standpoint. The previous 2008 comparison I offered was based on how investor psychology is reflected in price patterns and I felt the fall of 2008 was very similar once Dexia was nationalized. I just want to be clear why I am now presenting a second comparison.
In essence I view the current market similar to the above as more technical in nature. The timetable though is slightly different as once investor fear returns in the face of the reality facing Europe we will easily fast forward to the pattern in the fall of 2008 presented earlier (i.e. we will skip the late spring and summer of 2008).
Images: Flickr (licence attribution)
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