Current Market Rally Echoes a Pattern from the Past

Aug 26, 2014: 9:38 AM CST

If you look closely at the current market rally, you may see something eerily familiar.

Let’s chart the current intraday rally (as we’ve been highlighting) and compare that to a familiar friend on the chart and learn a quick lesson about technical analysis in the process.

I’m using the @ES futures contract (S&P 500) to show the overnight data.

Initially, I wanted to see how strong – how pure and persistent – this rally has been but in the process, I saw something rather interesting.

If you take nothing away from this chart, let it be that market rallies can be strong and should not be fought (strength can lead to more strength).

However, if you want to take it a step further, compare the intraday (hourly) chart of the @ES futures with this one:

Start with the left and move right.

Notice the up-rally into the 1,500 @ES level ahead of a familiar 5-wave decline toward the 600 @ES low (March ’09).

Continue charting the comparison through the rally phase and notice similar echoes of the past with the present.

Technical Analysis – studying price charts to find repeating patterns or read signals from indicators – is fractal.

While you may have heard this before, all it means is that price tends to move in similar patterns as buyers and sellers interact.

The patterns repeat on all timeframes (though the longer frames take more time for the patterns to develop).

I’ve been aggressively highlighting a short-term pattern that was recently achieved:

Studying the “Repeat Pattern” that Forecasts New Highs for the S&P 500 (achieved!)

“Onwards and Upwards to New Highs for the S&P 500?

Planning a Breakout (from a Repeat Pattern) in the S&P 500

S&P 500 “Breaks on Through to the Other Side

Decision Point for the Dow Jones

This same pattern has played out many times on many timeframes.

When you’re studying price, take a moment to determine if any pattern ‘feels’ familiar.

With experience, you’ll develop your intuition and sense of “this has happened before” and it can be an exciting feeling to recognize a pattern from the past and watch it develop in real-time (but this time, you have a road-map for potential trades to take should price continue to repeat the pattern).

Corey Rosenbloom, CMT
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Corey’s book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).

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