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Guest Post: Comparing The 2007 Topping Pattern To Now
From Tony Pallotta of MacroStory
Comparing The 2007 Topping Pattern To Now (Updated)
Remember one simple truth, 91.8% of ES Futures daily volume is attributed to day traders and computer algorithms. And since not one single person within that group uses macro data for their intraday trades then it is safe to say the market in the short term has little to do with pricing in macro economic data. Remember how the SPX peaked two months before the great recession actually began. That is not forward looking.
Market participants are already analyzing today's afternoon rally as a sign that this market is resilient, that the economy is still headed for a soft patch and that the bull is alive and well.
I beg to differ but instead would rather highlight two important aspects of this market I suspect is dictating price.
Shorts are scared and longs are delusional. Bernanke not only taught investors to buy every single dip he even has them convinced the removal of the Bernanke put (i.e. QE) has no downside risk to the market. The move the past two weeks was foreseen by no one and hurt a lot of shorts while making longs feel smart yet again. Even a lot of macro bears were capitulating on the economic data the past two weeks. That is until today.
The next and probably most important aspect of this market I suspect is psychology. It's not technicals even in the face of some bearish patterns created today like island reversals. Nor is it macro data although the transitory weakness argument just got a whole lot more difficult to defend.
A number of times I have compared the current topping pattern to that of the 2007 pattern. The reason I suspect they are similar is for psychology during such times does not change. Longs don't want to surrender their money making machines. Shorts are eager to price in economic weakness and the argument about soft landing or recession grow louder.
The magical Point E may now be in for the current market. The similarities are striking of the move to point E in both 07 and 11. A similar move also occurred in the treasury market as highlighted here. That wild move higher shakes a lot of shorts out of their position, pulls in the last remaining dollars from the longs before finally ripping lower leaving few on the train.
During these Point E's the macro data is confusing as well. For example the NFP reports (and ADP) right before the great recession showed a positive reversal in job growth. I am sure the debate of soft patch or recession were just as loud then as now.
So if in fact Point E is in (the current chart is not updated with today's price but trust me it was lower) expect a pullback, one last sucking sound of doubt move higher and then hell breaking loose. Which by the way would be a lovely set up for the Bernanke Put round 3.
Lastly I suspect one additional thing keeping a bid in the market is the hope of a debt ceiling deal possibly as early as this coming weekend. How that is bullish is beyond me for it will result in the government agreeing to reduce up to $4 trillion in fiscal stimulus from the economy and easily could put the US back into recession. Other than a bounce and removal of doubt as if there should be any on this matter there is nothing positive about a debt ceiling deal.
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I think we are now forming the HEAD of a complex H&S. Somewere around 1400-1450 should do it, Then we work on the right side (da bear side)
Wow! Tech analysis is death by algo.
Fundamental analysis is based on lies.
Guess we should all give up and give our drinking money to the
Big Fat Cats!
Have a nice Weekend!
There's only 1 way I can see Dow15k, that is a 30-50% drop of the dollar. Boomers pulling money from the market (sell), kids who don't have jobs, indebted middle agers.... etc. Who's gonna buy stocks? Asians will buy Asian stocks and laugh at the hacks in the west. So do tell, how can the dow levitate to 15k?
only difference is this right shoulder or "e" is higher then the left shoulder, as opposed to 07... usually a weak market putting in a head/shoulders top, the right shoulder tends to be lower then the left shoulder
Tony is the man!
Accurately sums up the moral hazard that our central bankers have infested us with.
dow is headed to 16k....GUARANTEED! banks will make sure obama will be reelected. They are holding this country hostage. DO NOT FIGHT THE MARKET PERIOD. TPTB will make sure the market soars so their wealth increases, then the biggest crash that will have ever been will happen and they will buy it alllll back at a discount same as 1929.
AMEN Sibling! This Bull will gallop through QE3, QE4 and 5. I won't bail until the end of Obama's 7th year. YiiiHaaaa
Things look so good I have a massive number of $23 puts out on Silver, for $900 gold, and I am loooong the USD!
To infinity, and beyond!
I appreciate, understand, and agree with all of the tech analysis criticisms...doesn't tell u the truth till its too late, everybody knows the rules etc...but at the risk of future ridicule, it still looks like a triple top in the ES, not confirmed till support is broken at around 1260, maybe small snapback rally then look out below. Parabolic upturn in ES and even more pronounced in NQ is just plain scary. Not saying I know anything, been wrong plenty of times before, but that's what makes it fun right? Have a good weekend gonna go have another and try not to think about it till mon.
This is not a topping pattern - this is the launch pad for a new bull run caused by a debt/bond default and money pouring out of bonds looking for a safehaven to retain purchasing power.
A bond market collapse is knocking at the door - a gun has been placed at the head of Congress once again - namely rerating AAA straight to D unless the debt ceiling is raised. However, Congress can't agree on what day of the week it is never mind raising the debt ceiling, this act, to come together and agree on something may be beyond it - I think the Congress has slipped into the equivalent of Governmental Alzheimers - they babble and drool and no longer serve a useful purpose.
Given that the debt ceiling does not get raised and AAA goes to D, then bonds will collapse, financial armageddon will ensue, gold and silver will be confiscated and stocks will nominally soar while simultaneously experiencing a real term loss of purchasing power equivalent to a crash - long or short in stocks you lose, long PMs you lose (the shorts will be forgiven), long bonds you lose, long the dollar you lose. The government will then under emergency powers seize all your assets and POTUS can declare supreme power under these emergency conditions.
Hopefully at this point POTUS will invite in Jamie and Blanky, Rumy, Shrub, Chenney et al and have them arrested for treason and executed. More likely they'll all sit down for a celebratory lunch of noodles and start speaking in the native tongue - Mandarin.
Mission Accommplished.
Topping patterns can take a long time, this beast is putting in new highs before the fireworks begin in September. Catch the second down-draft of a falling market, never try to pick a top.....unless you're Tim Knight.
Great piece, but you sort of go off the rails with this...
Lastly I suspect one additional thing keeping a bid in the market is the hope of a debt ceiling deal possibly as early as this coming weekend. How that is bullish is beyond me for it will result in the government agreeing to reduce up to $4 trillion in fiscal stimulus from the economy and easily could put the US back into recession.
Well, let me try to explain it.
1) Fraud Street knows the cuts will never happen (the 1990 budget deal was supposed to cut %1.50 for every $1 in tax increases - spending went up slightly instead)
2) The real economy never left the recession/depression and Fraud Street continues to levetate up on, well, nothing. So why change that pattern now?
Another article about the 2007 nominal top with nothing mentioned of the fact that this top was still 16% below the actual 2000 peak when adjusted for inflation. Terms like "Great Recession" are just masking the truth of matters.
http://advisorperspectives.com/dshort/updates/Real-Mega-Bears.php
"The move the past two weeks was foreseen by no one"
I beg to differ - poof here: http://evilspeculator.com