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Does History Rhyme? SPX

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July 03, 2011 – Comments (0) | RELATED TICKERS: SPY

Market showed off a very powerful week at the end of June with 5 straight winning days but would that mean the end of this bear market? Some may say so considering all those 5 days market closed at the top of its candles. Interestingly though, I found some surprising similarities between this market and the summer 2010 when market also in a major sell-off. History doesn't repeat but will it rhyme?

Take a look at this chart in 2010:

 

In the square, market rallied off what seems to be a small double bottom pattern after the moving averages crossed over. Then follow another heavy sell-off with heavy volume before entering a months long trading range.

 

Here's the chart of our current year:

 

We find a very similar pattern here with a rallied off a small double-bottom at the 200MA Will there be a sell-off follow after this? We certainly cannot ignore the possibility but there are some major differences between these two charts. Our price action in the 2011 is much stronger, we managed to bounce almost back to previous high and well above all major moving averages especially the 50MA (red) and 200MA (white). In 2010 we did not. 

 

My sentiment is bullish in this current move and watch out for some potential longs, however I will be mostly in cash as the possibility of a sell off is still in the cards. Additionally, this market is well over bought, if a sell-off doesn't happen, a consolidation or pullback is due for the short term.  

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