It took me by surprise that the R2K moved cleanly back into the 2014 range and the SP500 back above its 200MA in yesterday’s powerful up day. However, I believe odds are we still roll over here around tomorrow’s new moon only from a little higher up. That would make for a double fake: first below and then above the key technical levels. The weight of evidence still supports this being a second chance peak and that even if that is not the case then the market should first retest last week’s lows.
With history as our guide, here is the mid-2010 correction:
Compare to the current:
Both corrections began measured then collapsed in capitulative style before rallying back up from the purple circles back to the more measured downtrend. If this is repeating then the SP500 should now turn down again and tomorrow’s new moon provides the ideal timing for a reversal.
We can see how in 2010 the market based over a period with the MACD turning up. We lack such a stabilisation currently.
In last week’s analysis I argued for why we are now equivalent to late in the 2000 or 2007 topping processes, effectively January 2008 or October 2000. Both historical mirrors saw a similar collapse to a capitulative reversal point before a rally back up like now:
So all three analogs suggest price should come back down to retest the lows and stabilise around those levels over a period.
If this is not to occur then we could look to mid-2007 for the more bullish outcome:
A rally all the way to marginal new highs from a single-legged correction. However, I remind you that this corrective leg was the start of the market topping divergences in 2007, whereas now we are mature in those divergences, equivalent to January 2008. Various indicator readings just don’t match up well with mid-2007.
If we draw in the crash analogs, such as 1929 and 1987, then we are still in keeping with the second chance moves to a lower high before the true collapse, but only if we now roll over again over the next several sessions and head back down to last week’s lows. Crashes may not occur often, but I maintain that we have all the conditions in place for one to occur, and I stick with this being the most likely scenario: reversal around tomorrow’s new moon and then major crash into the beginning of November. Stabilisation to occur from much lower.
If we are not heading for a crash then the three analogs at the top of the page show that we should still make a retest of last week’s lows. I think the mid-2007 analog has the slimmest chances of reoccurrence but it will become clear over the next several sessions as if something like that were re-occurring then stocks would consolidate yesterday’s break upwards and rally higher still.
All the other analogs argue for a reversal back down without delay, and this still looks the most likely (geomagnetism is in progress, capitulative breadth is back to zero and various indicators are overbought), so I leave the analysis there for today and we see if that occurs before the week is out. If it looks like we are rolling over again then I will add again to the short positions.