If History Repeats, Will it mean New High for SP500?

ppteam

Let’s take an interesting walk down recent memory lane - specifically, the last few months since late May 2009.  Why might that be useful?  Because four times over the last four months, price looked like it was going to begin a deep retracement… and then suddenly and sharply began rising, taking all short-sellers’ stop losses with them.  Is history about to repeat itself again?



Let’s walk back to the end of May 2009 when a negative momentum and volume divergence foretold of a pullback in the market.  The market did retrace back to the 20 day EMA at 880, broke intraday beneath it… and then surged to a fresh new 2009 price high.

Multiple dojis formed, all looked bleak for buyers, volume was diverging and now we had formed the dreaded “Three Push” negative momentum divergence in price into all these dojis.  I know of many swing traders who got aggressively short at these levels and traded as the market went lower.

Then the “Head and Shoulders” pattern formed, broke the neckline, and triggered a massive wave of short-selling into the “tri-star” doji pattern that began July’s lows.

Once again, as price started to rise, short sellers covered anxiously, and price surged very rapidly off the 880 “line in the sand.”  Bears were devastated; bulls were overjoyed.

Thinking the “third time is the charm,” bears again began to pile into the sell signal generated from yet another negative momentum and volume divergence into the 1,000 resistance level.  Price began its downward move, cracked under the 20 EMA yet again… and then just like the last time, surged higher, taking more stop-losses with them.

This time price formed even more dojis and an even deeper momentum and volume divergence - at the upper Bollinger Band, no less.  We had a strong gap down, a fall of over 1% that also cracked under the 20 EMA, and a whole new wave of sellers began putting on swing trading positions short.

And, like clockwork, buyers (or whomever) invalidated that sell signal as well, this time resulting in an even more powerful, almost nine day rally straight up without stopping - taking more battered bears with them in the process.

Now we form more dojis again at the upper Bollinger Band, have some tough selling (declining) days in a row, and we think “this is the high” and it very well may be.

But the question you need to ask is the following:  “Is this the “real deal” selling … or is it just one more Bear Trap that will result in a surge to new 2009 highs, driven in part by the stop-losses of the bears?”

Remember, it’s not about indicators - it’s about supply and demand.  Buyers - wherever they’re coming from (yes, short-sellers covering in ’short squeezes’ contributes to the demand side of the equation) are dominant and if history is any guide, it looks like we’re likely to have higher prices no matter how strange or illogical it may seem.

seabiscuit

Good article... I agree that "it’s not about indicators - it’s about supply and demand" from my painful losing experience.  It is never being late to learn...

ROOKIE2

live111

how to know "supply and demand"?

dara

Yes, Market can definitely push to new high,say 1100 from here.

Several big indexes look like never drop(like Apple, IBM, even JPM/BAC/GS do not drop much).
Even some kind of short covering could push index to new high.

But I really do not see market can go too much high.

Why the hell in the world people would buy IBM/GS/Apple/HP at this level? for what? They will drop, just  a matter of time.

Fig

Yes, Market can definitely push to new high,say 1100 from here.

Several big indexes look like never drop(like Apple, IBM, even JPM/BAC/GS do not drop much).
Even some kind of short covering could  ...
dara 发表于 2009-10-6 20:38

不买苹果怎样抬高NAZ？每一次的高潮都以果果的高点为标记

colderdown

Bears are not that stupid these days. New high means another entry. One day, buy dippers will be trapped.  There will be another article coming out and say some blah, blah, only the other way. This whole game is about risk control, cost etc since the asset price has not much to do with reality now.

wnd4

thanks

nanosensor

The trend is up, so we need to follow the trend not against!

nanosensor

Thanks for sharing! Good article!

COS

trueself

牛二买刀

It all depends on the institutes. If one day, at a point, the MM think it is high enough to take profit, they will dump the shares to the squeezed bears and the greedy bulls, then run away.

Only very small percentage of bulls and bears can survive that.