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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:
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.
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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