Bear Market Comparisons, Similarities & Projections (Charts) ~ market folly

Monday, August 31, 2009

Bear Market Comparisons, Similarities & Projections (Charts)

We wanted to quickly compile a great set of charts we've stumbled upon in order to put some things in perspective. Specifically, we want to focus on stock market comparisons between the current bear market and bear markets of past. Let's dive right in and start with a prediction.

Steve Puri has posted up an Elliott Wave projection chart for the S&P 500 and has also overlayed Fibonacci retracements:

(click to enlarge)

As you can see above, Steve hypothesizes that the S&P could hit 1,120 before reaching major resistance. He sees one more short-term pullback followed by a spring higher up to 1,120. That level, however, will prove difficult to spring above due to both the downtrending line and the fibonacci retracement level serving as resistance. This somewhat coincides with the video we posted up just last week regarding possible market scenarios outlined by fibonacci retracements. (If you're unfamiliar with fibonacci, then this educational video serves as a great primer).

Next, turning to some historical comparisons, we want to highlight a series of charts that point out some intriguing similarities. Dshort has compared the current crisis, the Nikkei collapse in 1989, and the 1929 Great Depression.

(click to enlarge)

The overlay is intriguing as it puts the timeframe and severity of drops in context. All three charts would seem to imply that there is still another drop and then another subsequent rally in store on this bumpy ride. The current market is in blue, the Nikkei in red, and the Great Depression in grey.

Zero Hedge then furthers this comparison by overlaying only the Nikkei on top of the current US market via the S&P 500.

(click to enlarge)

Once again, the comparisons are interesting. However, in this specific instance, it could possibly imply a much more abrasive rally is still ahead. Even though US markets are already up 50+% from the lows, a rally to match that of Japan's would mean there's quite a bit more room to run. We would however like to point out though that each crisis is specific and no two are identical in nature.

In another intriguing chart from Zero Hedge, they highlight the correlation between shares of AIG and the overall stock market.

(click to enlarge)

They are indeed quite similar and echo the fact that some of the stocks with the highest volume traded as of late have essentially determined where the market is headed. (AIG in orange and the S&P in white).

Lastly, shifting our focus away from the overall market, we see that Kevin has highlighted the practically omnipresent symmetrical triangle in Gold (via exchange traded fund GLD). This chart has been in this pattern for some time now, as evidenced by the weekly chart below.

(click to enlarge)

When symmetrical triangles breakout to the upside, they can be quite powerful. At the same time, you still have to be aware that they can breakout to the downside as well. Simply put, just wait for a break in either direction of the lines drawn. This also shifts the focus yet again to the $1000 level in gold that we've highlighted in the past as a very important level. In order for gold to really breakout, it has to get above the monster psychological and technical level of $1000. Kevin points out that the level of $95.25 is important for an upside breakout specifically for the exchange traded fund that tracks gold, GLD.

We highlight the gold chart in conjunction with the stock market charts because we've seen many investors flock to gold as a safe haven in times of uncertainty. And, if the market begins to plummet or if uncertainty rises again, we could potentially see a surge in GLD. After all, Third Point LLC hedge fund manager Dan Loeb flocked to GLD as he waited for uncertainty to pass at the beginning of the year. Not to mention, hedge fund Sprott Asset Management was also out recently with a recent research piece calling gold the 'Ultimate Triple-A Asset.'

That wraps up the interesting charts we've been taking a gander at lately. As such, we have yet again received conflicting research. Fibonacci retracements could imply further upside before encountering resistance. A potential gold spike could imply a negative future for markets if investors begin to flee from uncertainty. If we're comparing this crisis to that of Japan's, then the current market rally could have further to run. But just last week, we also focused on two reasons to be bearish. Around, around, and around in circles we go.

It is important to evaluate both sides of the argument and determine which one makes the most sense. Unfortunately, we may just have too much conflicting data at this point. Instead, we'll simply let the market guide us in the mean time since we're pretty much at her mercy. Because while the economy may be doing one thing, it's unfortunately perfectly normal for the market to be doing something completely different.

blog comments powered by Disqus