Why do we always say "this time it's diffrent' ?? Why, whenever a bubble was forming, people said it is not a bubble? Probably because our human desire to see the world (in this case financial markets) through utopic eyes, is stronger than our ability to see what is right in front of us, hence the problem everyone encounters, the trading psychology.
William Faulkner once said “The past is not dead. In fact, it's not even past." I believe this is the best description you can possibly come up with for the current US stock market. It's not visible on my chart, unless you zoom out a bit, but this correlation has been going on for a while, and I believe it is amazing!
Of course, every correlation at some point stops, and who knows, maybe it will stop very soon, this meaning we won't see the current bubble burst. But, and there is a but, I chose to publish this chart because I see a market that is hesitating at a strong resistance level.
Let's look at the current indices, without caring about the past, ignoring the correlation. We had a big selloff followed by a very strong rally. The DOW corected 78.6 % fib of the selloff. Everybody is forecasting good weeks for stocks, including the macro analyst that I watch closely and I trust. I don't like H&S patterns, I think they are unreliable, but this time I am considering for two reasons : first is the correlation but I said we are ignoring that for the moment, the second reason is the perfect price action. HH - HL - HH perfect uptrend ; followed by a LL - possible LH which is the perfect downtrend. If this Lower High is going to be confirmed, I believe the comming weeks will not be good for stocks. Now let's look at the S&P. Correction covered 100%, currently we are at the previous resistance and hesitating. A very nice Double Top (yes, I know double top formation is considered after closing below the previous support, but I like to call it a Double top from the beginning). The MACD allready confirmed the class B bearish divergence, histogram allready heading down. The candles show weekess, but the same as the DOW, there aren't some very strong bearish candles that will stick right out in front of our eyes.
I think both indices point to a correction. Normally I would not consider trading such patterns, but we have our 1929 correlation. Even if the bearish signals are not strong, I trully believe that it is worth shorting the american market, only because of the correlation. Think about it for a moment. It has been going on for a year now and the current level gives us an excellent risk reward ratio. In 1929, from the right shoulder at 357 to the first low at 212 the DOW lost 40%! Of course, it is hard to believe we can see today such a correction, but even with a smaller one, the risk reward ratio is fenomenal!
When the market opens, I'm going to open the smallest short position my broker offers, it will be like playing the lottery, I won't care about it because I will risk only a tiny bit of capital. Besides this short, I'm going to look for STRONG bearish signals that I usually trade, cause we don't have them yet (let's say except the divergence on the S&P)
William Faulkner once said “The past is not dead. In fact, it's not even past." I believe this is the best description you can possibly come up with for the current US stock market. It's not visible on my chart, unless you zoom out a bit, but this correlation has been going on for a while, and I believe it is amazing!
Of course, every correlation at some point stops, and who knows, maybe it will stop very soon, this meaning we won't see the current bubble burst. But, and there is a but, I chose to publish this chart because I see a market that is hesitating at a strong resistance level.
Let's look at the current indices, without caring about the past, ignoring the correlation. We had a big selloff followed by a very strong rally. The DOW corected 78.6 % fib of the selloff. Everybody is forecasting good weeks for stocks, including the macro analyst that I watch closely and I trust. I don't like H&S patterns, I think they are unreliable, but this time I am considering for two reasons : first is the correlation but I said we are ignoring that for the moment, the second reason is the perfect price action. HH - HL - HH perfect uptrend ; followed by a LL - possible LH which is the perfect downtrend. If this Lower High is going to be confirmed, I believe the comming weeks will not be good for stocks. Now let's look at the S&P. Correction covered 100%, currently we are at the previous resistance and hesitating. A very nice Double Top (yes, I know double top formation is considered after closing below the previous support, but I like to call it a Double top from the beginning). The MACD allready confirmed the class B bearish divergence, histogram allready heading down. The candles show weekess, but the same as the DOW, there aren't some very strong bearish candles that will stick right out in front of our eyes.
I think both indices point to a correction. Normally I would not consider trading such patterns, but we have our 1929 correlation. Even if the bearish signals are not strong, I trully believe that it is worth shorting the american market, only because of the correlation. Think about it for a moment. It has been going on for a year now and the current level gives us an excellent risk reward ratio. In 1929, from the right shoulder at 357 to the first low at 212 the DOW lost 40%! Of course, it is hard to believe we can see today such a correction, but even with a smaller one, the risk reward ratio is fenomenal!
When the market opens, I'm going to open the smallest short position my broker offers, it will be like playing the lottery, I won't care about it because I will risk only a tiny bit of capital. Besides this short, I'm going to look for STRONG bearish signals that I usually trade, cause we don't have them yet (let's say except the divergence on the S&P)