Wednesday, February 5, 2014

Current Equities Market Continues to Shadow 1929

The market has continued to punish those looking to buy the dip, which is market behavior most seasoned traders have been "waiting for" for a long time.  In a moment, we'll look at an interesting analog chart which overlays the current market with 1929 and shows a striking similarity -- but first, the current charts. 

On January 29, and in every update since, I've mentioned that the market was behaving like it's in a crash wave -- and so far, that continues to be the case.  I figured it needed no further discussion, but suppose I should add that, for less-experienced traders, "crash wave behavior" means that attempting to catch falling knives is ill-advised.

The SPY chart below shows a great example of where a seasoned vet might try to knife-catch this decline, on the idea that the most recent decline was/is a fifth wave.  The problem with crash waves is that they don't follow the "normal" guidelines of a wave structure -- which means that the bounces which would typically be expected to be tradeable often end up being nothing more than brief pauses in the decline.  When there's a crash-wave underway, most traders would do well to simply stick with the trend (as I discussed in a bit more detail on January 31).

Incidentally, January 31's near-term preferred count (the only count I published, actually -- no alternate was shown) proved to be correct, and wave (4) was indeed complete.  One could argue that we've reached, or are approaching, the end of this wave -- but again, given the crash wave behavior we've continued to witness, I would recommend approaching only with extreme caution.

In favor of the bulls, do note the positive RSI divergence at the recent low, and the fact that we hit black trend support and bounced.  If bulls can hold that line (or head-fake bears with a quick whipsaw) the market does have the ingredients present to put together a snap-back rally from here.

Next is the S&P 500 (SPX) 1-minute chart.  Near-term, this chart is an absolute mess.  I ended up cross-referencing five major markets against this chart, but none of those charts were much better.  The choppy, overlapping structure does suggest a market that's still struggling to advance against continued selling pressure, so we probably have to give odds to the idea that SPX is headed to new lows.

Examining the other side of the trade: the rally could conceivably be counted as an impulse wave.  In fact, that's what I've detailed on the chart (because that's how I do my chart work while trying to arrive at a conclusion).  I've outlined a few levels to watch.      

Next is the Dow Jones Industrial Average (INDU) -- a bit wider view than the two previous charts, which is always important for perspective:

Finally, there's an analog to today's market that you may or may not have seen previously.  It's certainly intriguing.  One of my regular readers has been tracking this for some time, and he was kind enough to send me his data in order to allow me to recreate his chart.  This chart compares the current Dow Jones Industrial Average to 1929's market.  We've been tracking this since before the market turned -- and now that we've seen something of a relentless decline, the comparison is starting to seem a bit uncanny.

In conclusion, SPX may be closing in on completing a fifth wave, which would finally lead to a larger bounce -- however, I would continue to recommend extreme caution.  Even if we bounce from here, all current indications still suggest that the trend has changed at intermediate degree and that bounces should be sold.  I will, of course, continue to watch for any signals which might suggest we reexamine that thesis.  Trade safe.

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1 comment:

  1. marketwatch has the 1929 chart extended to July of 2012. Even more interesting...or rather scary? Search for "Ghost of 1929 crash reappears" with the quotes if your interested.