Strange Similarities Between 2007 Peak and Current Rally High

Mar 22, 2010: 9:48 PM CST

In another “Hmm, That’s Interesting” post regarding prior market historical pattern, there is an eerie similarity in the rally that ended with the market peak in 2007 and the current rally into 2010.  Thanks to a blog reader for pointing out this comparison to me.

Let’s take a look at the S&P 500 and Dow Jones Indexes on their daily chart from the peak in October 2007 to present.

First, the “Then” Charts of the S&P 500 and Dow Jones:

Dow Jones:

This post will be more ‘pictoral’ than text-based, but the main idea is to look at the two charts above showing the exact market peak in October 2007 – it’s a snapshot in time.

Both charts are showing a negative momentum (3/10 Oscillator) and Volume divergence as price rallied one final time above the moving averages that crossed bearishly… as price rallied to a new high in October.

I’ll let the charts speak for themselves above.  Remember that you are looking at the exact peak in the market in 2007.

Now, we move to the present day (March 22, 2010) S&P 500 and Dow Jones:

Dow Jones Current:

And what do we see that is similar with both times?

  • Sharp, almost relentless rally into initial peak
  • Sharp downside sell-off (and volume spike during sell-off)
  • Negative (bearish) EMA Cross-over (sell-signal)
  • Positive 3/10 Momentum Divergence on the “ABC” Low
  • Non-Stop Rally to new high that breaks above 20 and 50 EMAs
  • Negative Volume and Momentum Divergence on the new high

And as of today, that is where the comparisons stop.

The question is – “Will the market of 2010 continue following in the footsteps of 2007?”

If so, then we are looking at a market top right here.

However, we’ll know that the curse… or pattern… (history) is broken should the market continue rising, or even make a slight pullback to support and break to new highs.

Unless we see the market pullback and then move to new highs… or start to see momentum and volume pick back up bullishly… then we need to be aware of the potential for history to repeat, and those who have not learned the lessons to be doomed to repeat them.

For now, this is filed under “Hmm, that’s interesting” but if we start selling off sharply, we’ll know price is following the historical pathway which should uncover a (not so bullish) future.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

7 Comments

7 Responses to “Strange Similarities Between 2007 Peak and Current Rally High”

  1. TheYenGuy Says:

    Excellent post.

    You relate “There is an eerie similarity in the rally that ended with the market peak in 2007 and the current rally into 2010 … The question is: Will the market of 2010 continue following in the footsteps of 2007? …If so, then we are looking at a market top right here.”

    My comment is that yes, yes, yes, a thousand time yes, we are at a market top.

    The Fed's monetization of the banks through TARP, Dollar Swaps, other Federal Reserve facilities, and committment to the debt of Fannie Mae and Freddie Mac, has inflated debt, stocks, oil and gold. A “debt carry trade”; that is a swapping out of US Treasuries for toxic mortgage and other debts, has liquified the global financial markets, much as the “yen carry trade” of days past, where investors sold yen and invested in high yielding currencies and in emerging nations for fantastic gain.

    Yet, the Federal Reserve's Funds for Quantative Easing are for all practical purposes used up; so the massive inflation shown in your charts of the S&P and Dow, is done and over.

    Oil, USO, rose to resistance at 39.50; direction is down first to 38.25, then 37.65, and lower, lower, lower as the world is in a deflationary cycle.

    Base metal, DBB, rose to 21.75; direction is down first to 21.25, then 19.25, and lower, lower, lower, as to repeat the world is in a deflationary cycle.

    Bob Kirtley in Gold: A Quick Look at the Chart by Bob Kirtley … http://tinyurl.com/yad4yrj … provides a helpful look at gold, $GOLD which is currently trading at $1,000; support is lower at $1,080, $1060, and $1,040 before it goes much, much higher as currencies and sovereign debt falls and the yield curve seen in the ratio of TBT to PST increases causing an investment demand for gold.

    My opinion is that GLD could easily fall from today's 107.75 close to 107, 106, 104 or 102 before moving higher.

    The chart of the dollar bull ETF, UUP, shows a 0.25%, fall which manifests as a bearish engulfing candlestick.

    For the next three days, the US Treasuries, TLT, go to auction. Will their price rise to 91.82 the 200 day moving average or will they fall lower? It's a toss up!

    I see a liquidity squeeze, that is a liquidity evaporation coming as sovereign default risks and aversion to debt of all types rise …. the soon coming falls in the price of gold presents buying opportunities to preserve one's wealth … I am not concerned about return ON investment that comes from short selling opportunities but rather return OF investment. Yes, I am very concerned for those who have funds at brokerage accounts. I favor the safety of gold coins, purchasing gold at BullionVault and buying the gold ETF in a trust account rather than a brokerage account.

  2. Diggy | Forexhabits.com Says:

    Hey Corey!

    Very interesting post! Thanks for sharing this!
    Fundamentally I believe the world is in a terrible position and I honestly think there is a lot of downside to come this year. Taking into consideration the fact that the markets have rallied since last year March, it would also not be strange to expect some sort of pullback maybe to 50% of the 666-1170 rally.

    Cheers!

  3. michaelarold Says:

    You are correct from a technical standpoint. I think it is also reasonable to compare markets from the fundamental standpoint. The current situation can be better compared to 2003/04: the economy came out of a (granted milder) recession, interest rates were extremly low (1%), the FED was about to start the tightening cycle and markets were climbing “the wall of worry”. The bull run from Sep 2003 – Apr 2004 is IMO a valid object for comparisson. I posted some additional thoughts about this topic on my blog:
    http://wp.me/pCTzl-69

  4. Rajandran Says:

    Hi Corey I would request you to re-look at the GANN FAN Charts of Dow Jones. Its just tested the GANN Long Term Resistance Zone 10838 and Just hovering below it.

    http://www.marketcalls.in/wp-content/uploads/20

  5. Breadth Comparison Between the 2007 Peak and the Current Rally | Afraid to Trade.com Blog Says:

    […] 23, 2010: 10:10 AM CST // I’ve received quite a few responses from posting on the “Strange Similarities Between the 2007 Peak and Current Rally High” yesterday […]

  6. Rajandran Says:

    Hi Corey I would request you to re-look at the GANN FAN Charts of Dow Jones. Its just tested the GANN Long Term Resistance Zone 10838 and Just hovering below it.

    http://www.marketcalls.in/wp-content/uploads/20

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