I commented on the subject on my previous comments; however, I will illustrate with charts on this post.
The anticipation of the crash: I have seen various types of analyses of comparing recent price action to 1929, 1987, and other major market correction. Such as the formation similarities, such as “W” and “RST” formations. I will show why we already priced in the correction.
The dynamic global economy: We are in Global economic environment than ever before as we can see that China and other Asian markets are showing bull market price actions. Comparing 2007 to 1987 or to 1929 is like comparing Apples and Oranges.
Why the 1987 34% correction? Among various reasons which we can come up with, it was the 205% rally going into the 34% correction.
As shown on the SPX monthly chart, SPX rallied 205% during Aug1982~Aug1987 before the 34% correction in Oct 19-20, 1987.
SPX consolidated during Jul1963 ~ Jul1980, then, it attempted to break out in Aug1980 which led to Aug1982 retest of the breakout from Dec1968 and Dec1976 tops.
After the retest of the breakout in Aug1982, SPX rallied 205% which led to 1987 34% correction.
1987 Climactic volume actions Note that the climactic volume actions during Oct 19-20, 1987. Prior to the climactic volume actions, there was no change in volume actions suggesting that the 34% correction was not expected by market participants.
Furthermore, I noted above the correction was triggered by one big market participant who sold based on the analog presentation by a technician comparing 1987 to 1929 overlay. There are various interpretations, but I think that it was mainly due to “overdue correction” after the significant 205% rally prior to the correction.
Even so, it seems that 1987 34% correction was in control since the correction is 50% of 101.44 8/9/82 – 337.88 8/25/1987 (H/L 236.44 points 233%).
The low 216.46 on 10/20/1987
The high 337.88 on 8/25/1987
121.42 H/L correction which is 36%
The 236.44 point rally which is 233% minus 121.42 points correction is 51% correction.
Based on this observation, even though the correction is crash in nature, the crash is in control since it stopped at 50% retracement.
Comparing the above facts of 1987 climactic volume actions, volume actions prior to the climactic volume actions, and 50% retracement to 2007 7/19-8/16 correction
SPX 1555.90 on 7/16/2007
SPX 1411.27 on 8/16/2007
144.63 point 9% correction
This is about 50% correction of Jun2006-Jul2007 rally. 23.6% correction of Oct2002-Jul2007 rally.
As noted, the key is the differences in anticipation of the correction. As shown on the comparative 2007 vs 1987 volumes chart, we can see that market participants were highly anticipating the significant correction shown on the significant increase of volumes going into 8/16/2007 climactic reversal.
Again we heard the 1987-1929 fractal analysis over one year; therefore, market participants are already pricing in the correction.
Therefore, we can conclude that the 2007 7/19 – 8/16 correction was indeed significant when we compare the 216% rally during Aug1982~Aug1987 followed by 34% 1987 correction which was 50% retracement of the rally TO 97% rally during Oct2002~Jul2007 followed by 9% correction during 7/19-8/16, 2007 which is 23% retracement of the rally.
In conclusion, 2007 correction is already completed and based on the IT breadth and the level of retracements during 7/19-8/16/2007 indicates that markets are likely poised to trade higher.
http://www.traders-t...showtopic=75689
http://www.traders-t...showtopic=75366
http://www.stockcharts.com/c-sc/sc?s=$SPX&p=M&st=1970-01-01&i=p29590279120&a=115860631&r=246.png
