Unusual Similarities in Structure for Current Rally and Prior Creep Up

Oct 20, 2010: 9:35 AM CST

I always enjoy pointing out unusual or strange similarities in price structure over time, and one of the most eerie ones on a larger scale that has occurred recently is the similarities of the two “Creeper” trends in 2010.

A chart is worth 1,000 words:

What we’re seeing is the two big rallies in 2010 – that of February – April (left) and the current late August to present.

Even before I start describing the similarities of the rise, the similarities of the prior fall were eerie too.

We had a little “ABC” Elliott move that looked similar that took the market down to the 1,040 pivot.

Starting with the 1,040 pivot, in both cases, the market formed a sharp upside reversal candle off this level to begin the power rally (1).

A sharp rally occurred for a few days, which took us to point (2) which was a brief pullback – one day in the recent rally and a few days in February.

The prior rally gave a large sustained upside move that was stronger than the current rally, but both consolidated in a multi-day sideways consolidation as highlighted.

Price launched another rally – breaking overhead resistance – and that leads us to where we are right now – and the critical question:

“IF these rallies are so similar THEN what is the next course if they keep repeating?”

Yesterday’s sell-off might not have come as a surprise to those following the pattern – as a quick one-day move occurred in mid-April.

A one day sell-off did NOT reverse the creeping up trend, and in fact, a new price high occurred a few days later after about a week of up days.

However, the market was so overextended on multiple divergences – I called this the “Dead Air Rally” or “Decay Rally” in a prior blog post on breadth divergences – that odds were overwhelming (but not guaranteed) for a decline.

We all know what happened next – the Flash Crash.

Markets that creep higher on deteriorating internal (volume, breadth, momentum) strength often lead to sharper than normal pullbacks – the Flash Crash being a harsh resolution when the bullish music … stopped.

So if the pattern repeats exactly – and there’s no guarantee it will but it’s interesting to note – then we can expect to see a string of daily rallies ahead leading to an ultimate peak before a potential new sell-leg to correct the overbought/divergence situation.

Given that 1,200 and 1,220 serve as higher timeframe major resistance, it should be interesting to watch if we do indeed pull-up into those levels.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

8 Comments

8 Responses to “Unusual Similarities in Structure for Current Rally and Prior Creep Up”

  1. David O. Says:

    Thanx Corey…always informative.

    Later.

  2. denali92 Says:

    The similarities are remarkable – IF Tuesday's down trade had occurred on Monday and today's melt up today, you could almost call them identical!

    As that Monday fall on April 18th is very similar to yesterday's fall.

    The other AMAZING thing about this rally is that every time we get hourly Oversold for a brief period of time – 31-Aug, 23-Sep, 4-Oct and now 19-Oct, the sensible thing previously would be to wait to buy till the next morning when the market used to show weakness as weak long stopped themselves out – NO LONGER – Instead we just GAP and GO up – remarkable!

    What it does mean longer term is that all shorts will cover when we get hourly OS in the afternoon and then the one day we will have another down open and we will hit an air pocket as there will be no shorts looking to cover, as they will already have covered!

    Instead of popped stops, it will be a liquidation cascade!

  3. reflex121 Says:

    Right on. I have been following this corollary for about a week. There is still that pesky gap around 1,200 that I believe will get filled perhaps next week.

    Things I'm watching:

    -VIX sell signal happened in mid April. VIX sell signal happened middle of this month.
    -SPX broke trendline and now retests. Shows weakening strength in trend. A new high to around 1,200 and back down into this range would form a similar diamond-top pattern similar to Apr-May.

  4. Matt Says:

    I was just talking to someone yesterday about the amazing similarities, I just didn't realize it was THIS similar. Thanks as always for the great posts.

  5. Don-Da-Mon Says:

    I saw this, too. It's uncanny how many times I read this blog to find similar analysis. Also, notice, the comparison is exactly 6 months ago. Hence, semi annual results were drivers for fund managers in that rally, just as EOY (October) is the driver for this rally. Take a look at end of quarter dates and see how they influence the market movements.

  6. Elisemcclintick Says:

    Corey, this chart is better than a good mystery. Can't wait to “flip the page”. Many thanks. Elise

  7. Gary_UK Says:

    I think the market action and resulting candle we saw yesterday (21st Oct) would correspond with point 5, and therefore 'the top' this time.

    If so, today (22nd) will be a fairly decent red day. And so it begins, crash 2010!

  8. Updating the Developing SPX Arc Repeat Pattern You Should Know | Afraid to Trade.com Blog Says:

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