Not 1929, yet, and here comes a Big Rally

Comment and Blog

Nov

This post by Schweizer has been promoted from StockTock Social. If you’re not yet a member, you should be. The analysis from the community has been top-notch.

Each dot on the chart represents a major correction (-15%) as measured by the Dow. For example, the bear market that began in 1973 lasted 481 trading days and ended after the Dow declined by 45%.

Since 1900, the Dow has undergone a major correction 26 times or one major correction every 4.2 years. As it stands right now, the current stock market correction (October 2007 peak to most recent low which occurred yesterday) would measure slightly below average in duration but above average in magnitude.

In fact, of the 26 major stock market correction since 1900, the current stock market correction currently ranks as the fourth largest in magnitude (only the corrections beginning in 1906, 1929, and 1937 were greater) and is the most severe stock market correction of the post-World War II era.

Investor sentiment seems to be in panic-crash mode, and the market appears severely oversold with only 1.6% of the S&P 500 stocks trading above their 200-day moving averages. (The 200-day moving average is often viewed as a crude measure of the primary trend.) It can’t get much worse than this!

Credits: Prieur du Plessis

RALLY !

The weekly $VIX is flashing “Rally Time” based on divergences. Seasonality also likely to underpin it. I heard one analyst comment that there has always been a Santa Claus Rally for at least the last 100 years, though some rallys were pretty minor. That was then and this is now, and the $VIX suggests it will happen, and it could be huge. Look at the width of the Bollinger Bands! I expect a retrace to the lower uptrend line as shown at below 30. Where will the S&P go? It makes sense that it would backtest the downtrend line that it fell through in early Oct, rally to the 38.2% Fib, and touch the 50wma as shown on my chart. We shall see!

Don’t think it can happen? It can!

Here’s the Tony C., John Grant, and Tim Wood weekly telecon (37m).
CLICK HERE

Jerry48 says:

November 22, 2008 at 9:11 pm

Was Friday the short-term bottom? Or is there maybe one more leg down? McHugh in his weekend newsletter offers some cautions about seeing a bottom here.

1. We cannot rule out a bottom yesterday.

2. However, there is a significant Fibonacci Cluster turn window starting Thursday, November 20th, and running through early December.

3. Another point of concern in saying a bottom is in is that the Elliott wave Declining Wedge pattern allows for one more decline short-term.

4. We also are concerned that the 10 day average Advance/Decline Line Indicator actually got worse Friday in the S&P 500 and NDX, on a day when prices rose 5 percent. That is odd for the start if a rally phase. Call it a minor Bearish Divergence.

5. New Lows were awful again Friday, 47 percent of total issues traded on the NYSE. And Advances were only 63 percent of total issues traded on the NYSE Friday. The start of a major rally phase should do better than that.

6. We did not get a 90 percent up day Friday, which is also something we would prefer to see to declare the start of a major rally phase.

7. Also, Friday was options expiration day, and that often is a rally day, to protect options writers.

8. The rally Friday could also be tied to a news event, the rumor that Obama is tapping the New York Fed’s President for Treasury. Rallies on news can’t really be trusted.

9. So, while it is possible the November phi mate turn date came on its scheduled date, November 20th, we would not be surprised by one more decline to complete patterns