SPX Post Crash Pattern Same as Nikkei, History Repeating

By: Captain_Hook

Stock-Markets
Best Financial Markets Analysis ArticleJust about everybody has heard the truisms ‘history repeats’, and if this is not true ‘history rhymes’, however it’s been my observation that a far as present day stock market participants are concerned, not many take the validity of these statements as seriously as they should. After all, people are people right, even if they were acting in the context of another era, and in this case, other market bubbles. This is the important understanding that many are missing you see, that people are no different in the way they react to extreme market conditions (stress) today than they were during previous post crash episodes, including those that inspired Charles Mackay to pen the timeless Extraordinary Popular Delusions And The Madness Of Crowds all those years ago now.

The following is an excerpt from commentary that originally appeared at Treasure Chests for the benefit of subscribers on Tuesday, July 28th, 2009.

And while exact details and patterns can for the most part only rhyme in full measure, without a doubt this is one of those instances where you do want to ‘sweat the small stuff’, because in doing so one would be missing close enough approximations to model future trading decisions on that have proven very profitable indeed. Or at a minimum, such information, if believed, could have prevented trading losses for those who attempted to capitalize on the recently foiled head and shoulders pattern that characterized the major averages. Many unknowing speculators attempted to do so and lost money, which is of course common when trades get crowded in mature markets. The markets become like casinos you see, with the house (knowledgeable speculators) having the advantage.

Now you might be thinking I am referring to the boys down at Goldman Sachs here, where as mentioned the other day it appears they front run the Uncle Sam accounts so that when they are executing the bureaucracy’s wishes, they make big profits in the process. But no, I am not referring to these guys as being knowledgeable speculators. If left out of the bureaucracy’s loop, these guys would likely loose money, as it’s probably been ‘too easy for too long’ being plugged into the information pipeline from Washington. No, I am referring to you and me, guys who do our homework, and stay sharp, as it’s the laws of the jungle for everybody else outside of the loop.

Along these lines, and in following up on which historical pattern would dominate from last week, it appears the winner was Figure 2, courtesy of continued gains in the stock market. And as you will see below, if we see more gains this week (and possibly next), which appears likely at this point, then, as opposed to history simply rhyming in this case, we could have an exact pattern match between the S&P 500 (SPX) and post crash pattern of the Nikki measured in calendar days. What’s more, and to frame this in the proper context as per above, it appears in terms of the high degree events we are working with these days, history is repeating right on schedule if that’s possible, making our job as speculators far easier in terms of positioning decisions. (See Figure 1)