If you’re bearish…

If you’re bearish, you’re probably looking at this nasty comparison of the Russell 2000 with the Dow Jones Industrials in 1987.



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1 thought on “If you’re bearish…”

  1. That is the strangest thing. I was sitting and looking at the fall off in momentum in each subsequent rally (McClellan Summation) and thinking that the SPX chart looks just like last year at this time. And then your chart above comes along and reminds me of this post by Kevin Tuttle ( http://www.minyanville.com/gazette/newsviews/?id=4161 ). He draws a pattern not to different from yours but did it April 14th last year.

    Check it out. See what you think. To me it confirms a similarity to last year more than 1987. Although with the VIX down where it is maybe not…


    Well, that is interesting.

    It’s funny because last year I was looking at the same thing Kevin Tuttle was looking at – I did so much work on the Dow 1987, Nikkei 1990 and Dow 1929 topping patterns that it’s pretty much burned into my retina…which is originally why I saw it on the Russell 2000 the other day.

    I’m really not betting not betting on another crassh though. During my studies last year, I found that the pattern appears a lot during bull runs. When the market undercuts the recent lows, usually everyone gets so bearish that the market catches itself and reverses higher. It’s actually a great buying opportunity. It just happens that once a decade, it doesn’t catch itself and crashes. So trading the pattern is a real Catch 22.

    The one thing that bothers me about the market right now is that the NASDAQ is acting so punk. If you look at 1987, the NASDAQ ran up and made a double top while the Dow Jones made the pattern I put on the blog. A similar thing is happening right now…except in reverse…the S&P 500 could be making a double top and the NASDAQ is just meandering in a sloppy triangle. So I’m keeping my guard up. In healthy markets, the NASDAQ and small cap stocks lead the way. So the rally the past couple of weeks can’t really be classified as healthy since the NDX and RUT are both lagging.

    Another thing I’ve noticed is that everyone is looking at the VIX. It’s really amazing since five years ago, probably 90% of traders didn’t even know what it was. That leads me to put less weight on it as an indicator. From 1995 – 1996 the VIX traded below 10 – so there is precedent for lower readings in a good bull market.

    Anyway, I’m looking for more sideways consolidation but no crash. I think you’re right in comparing the market to last year instead of 1987 – more choppiness ahead.

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