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Are We Headed Back To 1980? at Trader’s Narrative




Are We Headed Back To 1980?


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Back in November 2008, when the market was just days away from making that year’s lows I pointed out an ominous double top formation on the S&P 500 index.

The market managed to bounce from that support but when it was tested again last week, it wasn’t strong enough. The double top formation has unquestionably completed. The only remaining quandary is will it complete?

Before I showed a log scale chart (see above link), so here’s an arithmetically scaled chart of the double top:

SP500 long term doube top measured move

If we take the neckline to be 776 on the S&P 500 (the 2002-2003 bear market low) and the top to be 1576 reached in October 2007, then a measured move would be meaningless because it would require the market to drop 800 points - something it can’t do right now. Unless we invent a way for stocks to go into negative integers.

Even half-way completing such a measured move would mean utter catastrophe for the stock market and by extension the global economy. Especially if it happens suddenly.

Before you think that is completely impossible, consider the reality that a long term Japanese investor faces:

nikkei index back to 1980 level

Overnight, the Tokyo Nikkei Average fell to around 7300 - the lowest since October 2008. Taking into account inflation, the Nikkei is already well below that. So for the past +25 years, Japanese equity investors who bought and held on for dear life have nothing to show for it.

But as always, there are cross-currents to navigate. Just as ‘buy and hold’ becomes anathema, there may be a light at the end of the tunnel. According to Mark Hulbert’s “Market Timing Popularity Indicator” which measures the popularity of market timing strategies vs. buy and hold as recommended by stock newsletter editors. This indicator isn’t quantitative but intuitive so it can not give you a precise level or date but it has been clearly showing that the prevailing mood out there is to try and time the market, as opposed to just ride it higher, as it was during previous bull markets.

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3 Responses to “Are We Headed Back To 1980?”  

  1. 1 Michael Lomker

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    The prominent Elliot wave analyst (Prechter) exited his short position last week. His reason? He expects all banks and brokers to collapse in the next move down and wanted to get his money out and into gold and cash.

    I see that you are on the same page now. :D

  2. 2 Van Castle

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    How did the same chart look in 1968 or 1974 when we beoke to lower lows from a double and triple top at 1000?

  3. 3 TheTraderBlog

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    Great charts! I totally agree and offered a similar opinion, and compare the break of Citi last year of its 2002 low = drop from $22 to $1. The only questions is what will the catalyst be? A complete catastrophe I am afraid. Too bad, life was good so far! http://thetraderblog.com/?p=2073

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