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

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