By MoneyMorning.com.au
[Wednesday’s] market rally has me stumped. It’s certainly pushing me to the limit of my bearish view.
I think the next week is basically going to prove me right, or I will have to capitulate and say that I’m wrong to be bearish.
Let’s have a look at a long term S & P 500 chart:
Right now, we are very close to a point where the market needs to decide whether it can keep rallying, or will the long term downtrend reassert itself and fall over? At the moment, my view is the long term down trend will take over.
I want to compare where we are now, with the past price action we saw in the late 2007 and early 2008 sell-off.
Have a look at the point of control. It’s the mid-point of this trading structure, and usually the point of resistance in the future.
Consider the point of control as a gravitational point around with trading swings.
You can see that we had the initial sell off in late 2007 and early 2008. The chart clearly shows that we broke through the 200-day Moving Average (MA) and then created a small distribution in the lower section, leading to a false break of that low. Then, we got a rally all the way back to the 200-day MA.
The market spent a month around that 200-day MA, rallying up to the upper point of control.
After we turned back down, the selling drove us back below the 200 day MA, pushing it down from that high in early February 2008. This created the false break of that distribution.
That was the beginning of the selloff… and where the market started to crash from.
Compare that price action around the point of control to what we are experiencing now.
Again the charts tell us a similar distribution is forming:
As the market sold off through the 200-Day MA in July this year, it led to a quick selloff for a few weeks, creating another distribution. These movements led to a false break of the low.
So we’re now facing a market that has rallied all the way back through the 200-Day MA.
It’s decision time.
The S&P500 should find resistance near this point of control at 1300, and then turn back down towards the lower distribution… or it’s going to break through that point of control and continue the uptrend.
I’ll either be proven right that this market should fall over soon, or we are going to see the Santa rally and a big move to the upside, which would truly amaze me.
The similarities between 2008 and now are uncanny. If the relationship holds then we are getting very close to a major selloff.
The next week is certainly going to be worth watching.
Murray Dawes
Slipstream Trader, 9 November 2011
[Ed note: If you want to keep up to date with Murray’s free weekly analysis of the markets click here to subscribe to his YouTube Channel.]
Related Articles
Totally Standard Hyper-Inflation
Is There Any Upside for Gold Investors?
What a 2,300 Year-Old Coin Reveals About Gold
Gold Investing Far From a Bubble
From the Archives…
Your Retirement Savings – The Day the Government Began to Raid Them
2011-11-04 – Kris Sayce
Fed Up With Inflation…
2011-11-03 – Kris Sayce
All for Gold… But is There Gold For All?
2011-11-02 – Dr. Alex Cowie
Why Australia Needs More Losers
2011-11-01 – Kris Sayce
Qantas – A Grounded Investment?
2011-10-31 – Dan Denning
For editorial enquiries and feedback, email moneymorning@moneymorning.com.au
Slipstream Trader Free Market Update – 9 November 2011 (Edited Transcript)