|
As a general baseline of analysis, history gives us an indication of how our markets will react at current levels. It is no secret that global markets tend to retrace around October and that the seventh year in a decade brings larger than normal retracement.
In Chart 1 below of the S&P500 (SP-SpotV) we can see how a Double Top was created, with the first one coming in on 7 August 1997 and the second one on 22 September 1997.
Following this double top formation the market dropped briefly before moving up into new highs as it broke through the resistance of the double top. A new high formed on 7 October 1997 and the market commenced a strong pullback through October.
Chart 1 – SP-SpotV Daily Bar Chart 1997
click chart for more detail
Chart 2 below illustrates the most recent price action of the S&P500. The chart pattern resembles the 1997 chart, with a double top formation and the first of the double tops coming in on 16 July 2007. The second of the double tops may have been formed on 19 September 2007.
Chart 2 – SP-SpotV Daily Bar Chart 2007
click chart for more detail
If history were to repeat according to the charts of 10 or 20 years ago we may see a false break of the double top early in October followed by a sharp retracement back below the double tops. This would fall in line with the view of most technical analysts, who are expecting a larger market pullback in the seventh year of the decade and the 20th anniversary of the 1987 crash.
Trade Smart
Mario La Marra
|