Direxion Daily Financial Bear 3X Shares (FAZ)

[CaesarStone]

** BUBBLES and Bear Market Rallies - its been done before

Posted by: penny_ta Date: Saturday, May 02, 2009 10:41:14 AM
In reply to: None Post # of 9688 [Send a link via email]

I'm a strong believer in human psychology driving markets, so I figured that our current DOW 1982-2007 bubble deflating, should in some way resemble other bubbles of the past. After some digging, I found some VERY interesting stats, that you can check for yourself

1. DOW 2008-2009 - peak to bottom so far was (-54%, from 14.2k to 6.5k), and we've had a +28% rally off that. For those who think this was the bottom this year, consider this:

2. DOW 1929 - had a temporary bottom at (-60%), followed by a +28% rally. Result? Went on to make 5 more "new lows".

3. NASDAQ 2001 - had a temporary bottom at (-56%) followed by a +28% rally. Result? Went on to make 3 more "new lows".

4. CHINA 2008 - had a temporary bottom at (-51%), followed by a +27% rally. Result? Went on to make 2 more "new lows".

5. NIKKEI 1990 - had a temporary bottom at (-63%), followed by a +36% rally. Result? Went on to re-test that bottom 2 more times, and fresh new lows the following year.

Now that's 4 gigantic bubbles that had temporary lows in the -50% to -60% range, followed by +28% rallies in almost each case, followed by 2-5 "new lows" very quickly thereafter.

Maybe it means nothing. Or maybe investor psychology hasn't changed much in 100 years.

Its interesting that right now almost every trader and their grandmother is calling for a small pullback (fibonacci 38-50% like 800 or 780 on the S&P), then a run to 950-1000.

And if you're one of those, you have to ask yourself why you are running with the herd. Because there is no example in history that would support this kind of move. And no amount of shrewd Elliott Wave labeling is going to change that.

In fact, in every historical example that I could find...this is a key pivot point (this -55% drop, then a +28% rally), following which things tend to deteriorate quite rapidly - as the "hope" that drove the +28% rally evaporates and reality sets in

tons of traders and investors will be piling in around S&P 780-800, going for the "easy move to 1000"...so we'll get some sideways action there...but I suspect they will be like sheep being led to the slaughter house, thinking they're going on vacation.

And in the summer, after new lows hit, Elliott Wave experts will probably be furiously re-drawing their waves, to make reality fit the theory once again.

Just like they did last year. The data is on the link below.

http://xs539.xs.to/xs539/09186/0501-deflating-bubbles820.jpg