- After a 4 year run without a correction the market looked exactly like it did in 2007.
- In 2007 after a superb 4 year run without a correction there was an initial large correction of 10-12%
- There was then a 10% correction in Oct 2014 which caught everyone by surprise as it did in 2007. What then?
- Alternate camps made the argument for a crash or simply new highs as the trend continued
- What actually happened?
- The market in 2007 after the initial 10% selloff then made a 15% rally off the correction lows to new highs
- The market then formed a distributive top (ie a topping formation which was a diamond formation) over the next 7 months
- Once the consolidation pattern was completed and we broke under the 1st 10% corrective lows the real bear market commenced
- Markets tend to move in 7 year cycles ie 2000 -2007, 2008-2015……
- Once the market breaks its 100 week moving average and the monthly RSI goes overbought this is a big warning signal
Where are we now
- After the initial 10% correction in Oct 2014 we made a new high of 16% off the lows
- It is 10 months after that initial selloff
- It is 7 years after the 2008 selloff
- Weekly 100 week moving average has just been broken
- Monthly RSIs have gone overbought, topped out and rolled lower
What happens now
- Last years selloff was a prelude to what is happening now.
- Given the aggressive bounce out of 1800 last year I think they will try and defend this 1800-1850 zone very well short term
- Markets tend to top on large distributive patterns. They do not just go up then straight down
- A distribution pattern may continue to build in this zone which may look slightly different than 2007
- The risk is a break of 1800 in due course
- In which case there increases the probability of a 20% correction or back to 1600 or so (lets not forget ASx200, Dax emerging markets etc have already fallen 20%)
Point being: I think this is all incredibly interesting