So said Mark Twain. This is no where more obvious then in technical charts. I've always found charts facinating when viewed from an emotional level. Those patterns you see that are 100 years old you see today (with some slight manipulation). The fractal nature of charts is interesting to, what you see on a weekly chart you can see on a 5 minute chart. The reason, the two drivers of the market are fear and greed and even with computers running programs, they only run what humans program them to. Thus we see repetitive patterns and Saturday's post pointed out some of those repetitive patterns in tops.
This is a much loser look at the 2007/2008 top compared to now, I think you will find it fascinating.
Before we do that, lets just look at a couple of charts.
These are 60 min charts of the major averages, it's not even very often that we see divergences travl this far down the timeline, but when they do, they are serious. Make no mistake, there is nothing remotely bullish about these charts. They are somewhat frightening.
DIA from right before the last crash in a similar leading negative divergence, but price is higher now, making the divergence all the worse.
QQQ a much worse divergence then before the crash, the worst on the entire chart.
SPY 60 min considering price is higher then when the divergence started, this is a worse leading negative divergence then the crash.
Now some comparative analysis of a major top. Ironically the fundamental conditions are similar, except on a different continent. There's a freeze of interbank liquidity and credit. No one knows what bank is carrying what risk and how much of it, in many ways it's worse with downgrades already upon us and entire countries locked out of the funding markets. As far as the ISM numbers out of Europe today, you'd be hard pressed to say they are not in recession already. So it's ironic that there are so many similarities, then this....
I showed you this chart yesterday to point out similarities in the last 3 market tops.
This is a chart stretching from the start of the 2003 bull market to today's close.
1) I drew both long term trendlines from the first pullback
2)The 2008 top declines 19.4% from #2 to #3. The 2011 top declines 19.6% from #2 to #3.
3) This is the first trading range low put in, the second low is put in just shy of 2 months later and a little more then -1% lower in 2008. The 2011 second bottom is put in just shy of 2 months later at -2%
4) 2008 rallies 14.6% from the bottom the 2nd low or the bottom. In 2011 the S&P rallies 16.75% from the same place through today.
5) Both the 2008 rally and the current 2011 rally have both retraced approximately 57% from their highs at point #2. Also in 2008 as we also see now, the rally bumps up against the long term trend line as resistance.
The 2008 top had its last rally off the low of a downward sloping parallelogram that met resistance at the neckline of a head and shoulders top.
The current rally in 2011 also came from the low of a downward sloping parallelogram. The 20098 rally was 14.5%, the current rally is 16.75%.
The 2008 rally met resistance at the longer term trend line. Note the 2 red arrows, the first higher then the second in both cases, both cases led to a crash that formed the parallelogram we are looking at. The yellow arrows point out two points of longer term trendline resistance.
2011
The same timeframe Trend Channel that held both rallies in the entirety has had the stop hit-above is 2008, below is 2011.
2011
Compare the daily MoneyStream with 2008 above and 2011 below. Both called tops, both called the two humps before the market meltdown however the 2011 version is much more negative now then the 2008 top of the rally (comparable to today).
2011
3C, like MoneyStream called early tops at the highs, also the two humps before the market fell substantially, unlike MoneyStream, 3C called the 2008 and 2001 bottom of that late July/early August crash and like MoneyStream in 2008 3C called the positive divergence at the lowest point of the entire consolidation, which is where the longest rally started (the current rally now). 2008 above-2011 below. Stochastics also looks similar at both relative points (settings 30/4/5). There's a slight difference in the trajectory of 3C during the consolidation period, this is mostly due t 2008 having a much higher starting point. When viewed compared to the two humps that started the July crash, 3C is trading in line-not positive, not negative.
2011
I decided to also look at some of the breadth indications I featured in Saturday's post.
Above is 2008, there were similar negative divergences at the two humps (in yellow above), however, the breadth indicator was much stronger in at the 2008 rally high then it is currently, which is in a negative divergence. In fact the % breadth was nearly double in 2008.
2011
The 4 week Cumulative New High-New Low Index was inline in 2008 (above).
The same indicator is negatively divergent in 2011.
The NASDAQ Composite A/D line looked a little worse in 2008, but it is negative in 2011 and considering it had remained largely in line throughout both tops, the fact it is negative here should not be discounted. You could even make the argument that in 2008 the A/D line was flat while in 2011 it is trending down.
2011
The zoom is slightly off, but to the right we are looking at the same relative place today vs 2008, the % of stocks trading above their 200 day moving average was nearly 2x as high in 2008 and leading price positively, whereas in 2011 it is leading price negatively. In other words, breadth is much worse now then right before the 2008 crash, the market is much thinner.
2011
Stocks trading 1 channel above their 200 day moving average, In 2008 (above) it was 25% and in line with price.
Currently it's 16% and divergent with price, showing again breadth in the market or the amount of stocks participating and the extent to which they participate in the rally is much lower currently.
Above is the 2008 Percentage of stocks trading 2 channels above their 200 day moving average, it's at 13.75% and in line with price.
The same indicator today is less the half that at 6% and in a negative divergence with price.
So there are many similarities to where we are today and where we where in 2008, what you haven't seen is what happened next in 2008. Here it is...
The white area is synonymous in almost every way with where we are today, from there, price fell over 53%.
We are hitting all the same resistance levels, 3C looks like the market could drop any minute. There are quire a few similarities to 200 as well, but I'll save that for another day.
Right now the EUR/USD is trading about 20 pips below the 4 p.m. close. ES is trading about 5 points below its 4 p.m. close. Us futures are between -.15 and -.22%
I hope you found this post helpful.
