While I focused
almost exclusively on the technicals (chart analysis - patterns in
particular), Clif analyzes some of the macro-economic variables and
similarities between then and now, and brings in Cycle analysis
(for example, the Kress Cycle).
Head over to
read his entire piece - here is most of my article which describes
“The 1982 Scenario.”
Let’s highlight
some eerie similarities in the charts of 2009 and the end of the
1982 Bear Market in what was called the “Melt-Up” action.
First, let’s look at the chart structure at the end of the
Bear Market in 1980… though few realized this was the bottom at the
time.
As price
rebounded sharply off the August lows, price was ‘grossly
overextended’ and then we had a rounded arc reversal pattern that
accompanied negative volume and momentum divergences. In the
case of September 1982, we did see a much larger volume and
momentum spike than we’re seeing now. Price had broken down
out of a rising trendline and beneath the 20 day exponential moving
average (all charts are showing the 20 and 50 exponential average
as well as the 200 day simple moving average).
Speaking in
terms of visual charting or technical analysis, virtually any
market forecast would have returned a bearish implication from the
negative divergences combined with the trendline and moving average
break, and the persistent downward trend in prices.
Let’s compare this action with the current S&P 500 (as
of Monday, May 4):
Keep in mind
price is higher now than it was when I captured this chart, making
the case even more compelling… as you’ll see in an upcoming
chart.
We see a
negative volume divergence accompanying a negative momentum
divergence (shown in the 3/10 Oscillator and in other momentum
oscillators). A similar geometric ‘arc’ has also formed,
which hints at a gentle transfer between buyers and sellers (supply
and demand) - also a reversal/retracement signal.
So, what happened back in 1982 after I froze the chart in
the above image?
I wrote
“unexpected breakout” because the odds (from a technical analysis
and fundamental analysis standpoint… then just as now) favored a
downward move or price retracement to ‘work off’ the overbought
conditions. Plus, price had broken a rising trendline and the
rising 20 EMA, triggering at least a short-term sell signal.
If I extended
the chart further to the right, you would see price continue its
steady trek higher, rising persistently into August 1983 before any
meaningful pullback occurred. We often refer to this period
as the “Market Melt-Up” (as opposed to a melt-down) or as the
“Creeping/Oozing Trend Up” that continued to defy the bears
(sellers).
Let’s see the “1982 Scenario” in full contextfrom
down-move to the expected “reversal” point that failed and the
subsequent ‘melt-up’ that occurred afterwards.
And for comparison, let’s see the 1975 price action (in the
Dow Jones instead of the S&P 500) which shows an eerily similar
pattern.
So which one is
it? 1975 or 1982? Or both? Might this be a common
chart structure or development that forms at the end of a bear
market?
If either
scnario happens to be correct, we can expect higher prices yet to
come… no matter how strange that seems or how odd it might feel,
fundamentally, technically, or quantatatively.
Posted by onechosen1 on 7th of May 2009 at 09:53 am
even with all of the diveregences on the SPX and other charts,
is it actually time to get long for a swing...??? Maybe after
what might be a very mild pullback? I cannot trade daily; I
have to do swings. I am beginning to have no idea as to
whether to be "in" this market or not.... right now I am out after
losing $$ trying to short (which I suck at). Help...
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Title: Are We Reliving 1982
Posted by ravun on 7th of May 2009 at 02:22 am
Are we reliving the “Melt-Up” scenario of 1982? Or is it more like 1975? Both? Neither? Let’s take a look to see if we can draw parallels.
On Monday, I submitted an article to GreenFaucet.comentitled, “ Are We Reliving the 1982 Scenario?” I’m re-publishing most of the article here as well as a link to read a lengthier article by Clif Droke also at GreenFaucet.com entitled, “ Why 2009 is Turning into be a Repeat of 1975.”
While I focused almost exclusively on the technicals (chart analysis - patterns in particular), Clif analyzes some of the macro-economic variables and similarities between then and now, and brings in Cycle analysis (for example, the Kress Cycle).
Head over to read his entire piece - here is most of my article which describes “The 1982 Scenario.”
Let’s highlight some eerie similarities in the charts of 2009 and the end of the 1982 Bear Market in what was called the “Melt-Up” action.
First, let’s look at the chart structure at the end of the Bear Market in 1980… though few realized this was the bottom at the time.
As price rebounded sharply off the August lows, price was ‘grossly overextended’ and then we had a rounded arc reversal pattern that accompanied negative volume and momentum divergences. In the case of September 1982, we did see a much larger volume and momentum spike than we’re seeing now. Price had broken down out of a rising trendline and beneath the 20 day exponential moving average (all charts are showing the 20 and 50 exponential average as well as the 200 day simple moving average).
Speaking in terms of visual charting or technical analysis, virtually any market forecast would have returned a bearish implication from the negative divergences combined with the trendline and moving average break, and the persistent downward trend in prices.
Let’s compare this action with the current S&P 500 (as of Monday, May 4):
Keep in mind price is higher now than it was when I captured this chart, making the case even more compelling… as you’ll see in an upcoming chart.
We see a negative volume divergence accompanying a negative momentum divergence (shown in the 3/10 Oscillator and in other momentum oscillators). A similar geometric ‘arc’ has also formed, which hints at a gentle transfer between buyers and sellers (supply and demand) - also a reversal/retracement signal.
So, what happened back in 1982 after I froze the chart in the above image?
I wrote “unexpected breakout” because the odds (from a technical analysis and fundamental analysis standpoint… then just as now) favored a downward move or price retracement to ‘work off’ the overbought conditions. Plus, price had broken a rising trendline and the rising 20 EMA, triggering at least a short-term sell signal.
If I extended the chart further to the right, you would see price continue its steady trek higher, rising persistently into August 1983 before any meaningful pullback occurred. We often refer to this period as the “Market Melt-Up” (as opposed to a melt-down) or as the “Creeping/Oozing Trend Up” that continued to defy the bears (sellers).
Let’s see the “1982 Scenario” in full contextfrom down-move to the expected “reversal” point that failed and the subsequent ‘melt-up’ that occurred afterwards.
And for comparison, let’s see the 1975 price action (in the Dow Jones instead of the S&P 500) which shows an eerily similar pattern.
So which one is it? 1975 or 1982? Or both? Might this be a common chart structure or development that forms at the end of a bear market?
If either scnario happens to be correct, we can expect higher prices yet to come… no matter how strange that seems or how odd it might feel, fundamentally, technically, or quantatatively.
Corey Rosenbloom, CMT
Afraid to Trade.com
Interesting....
Posted by onechosen1 on 7th of May 2009 at 09:53 am
even with all of the diveregences on the SPX and other charts, is it actually time to get long for a swing...??? Maybe after what might be a very mild pullback? I cannot trade daily; I have to do swings. I am beginning to have no idea as to whether to be "in" this market or not.... right now I am out after losing $$ trying to short (which I suck at). Help...