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Sunday, January 13, 2013 1:07:35 PM
Amateur Investors Weekend Stock Market Analysis (1/12/13)
http://www.amateur-investor.net/Weekend_Market_Analysis_Jan_13_2013.htm
Back in early 2012 I said there were a couple of patterns to watch for in the long term. A year later both still remain in play. The first pattern was a large Head and Shoulders Top pattern in the Dow similar to what occurred in the 1970's. In this example after forming the 2nd Shoulder the Dow then traded sideways in a choppy pattern for 6 years (blue lines) as it held support at the 61.8% Retrace calculated from the late 1974 low to the 1976 high.
If we look at a current chart of the Dow a similar pattern has evolved the last several years with the rally from the March 2009 low acting as the 2nd Shoulder. If the Dow were to follow the pattern from the 1970's then a consolidation period/trading range would follow lasting several years with the 61.8% Retrace near 9250 providing long term support.
Meanwhile the other major pattern to be on the lookout for is a Broadening Top/Megaphone pattern. The S&P 500 exhibited this pattern from the mid 1960's through the early 1970's. Notice once the final move up completed (Wave 5) this was followed by a substantial sell off as the S&P 500 eventually made a lower low (point C).
Currently one could certainly argue a similar pattern is occurring in the S&P 500 as we are in the last leg up with a target near 1600 for the final 5th Wave. This would then be followed by a substantial sell off with an eventual drop below the 600 level as a lower low occurs.
A target for the Dow in this pattern would probably be around 15000 or so for the final 5th Wave. Meanwhile once completed the downside target would be below the 6000 level.
Of course the big question is which pattern is favored at this point? Looking at a daily chart of the S&P 500 versus the Volatility Index (VIX) shows investors are extremely complacent as the VIX is at a level not seen since June of 2007. Meanwhile the S&P 500 appears to be exhibiting an Ending Diagonal/Wedge pattern as "e" is nearing completion. Thus at this time I would favor the large Head and Shoulders Top versus the Broadening Top as talked about above.
http://www.amateur-investor.net/Weekend_Market_Analysis_Jan_13_2013.htm
Back in early 2012 I said there were a couple of patterns to watch for in the long term. A year later both still remain in play. The first pattern was a large Head and Shoulders Top pattern in the Dow similar to what occurred in the 1970's. In this example after forming the 2nd Shoulder the Dow then traded sideways in a choppy pattern for 6 years (blue lines) as it held support at the 61.8% Retrace calculated from the late 1974 low to the 1976 high.
If we look at a current chart of the Dow a similar pattern has evolved the last several years with the rally from the March 2009 low acting as the 2nd Shoulder. If the Dow were to follow the pattern from the 1970's then a consolidation period/trading range would follow lasting several years with the 61.8% Retrace near 9250 providing long term support.
Meanwhile the other major pattern to be on the lookout for is a Broadening Top/Megaphone pattern. The S&P 500 exhibited this pattern from the mid 1960's through the early 1970's. Notice once the final move up completed (Wave 5) this was followed by a substantial sell off as the S&P 500 eventually made a lower low (point C).
Currently one could certainly argue a similar pattern is occurring in the S&P 500 as we are in the last leg up with a target near 1600 for the final 5th Wave. This would then be followed by a substantial sell off with an eventual drop below the 600 level as a lower low occurs.
A target for the Dow in this pattern would probably be around 15000 or so for the final 5th Wave. Meanwhile once completed the downside target would be below the 6000 level.
Of course the big question is which pattern is favored at this point? Looking at a daily chart of the S&P 500 versus the Volatility Index (VIX) shows investors are extremely complacent as the VIX is at a level not seen since June of 2007. Meanwhile the S&P 500 appears to be exhibiting an Ending Diagonal/Wedge pattern as "e" is nearing completion. Thus at this time I would favor the large Head and Shoulders Top versus the Broadening Top as talked about above.
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