See the resemblance? Grind higher on the left side, choppy consolidation then a last gasp rally before a fast, high volume plunge. High volume on the low with a strong capitulation reversal candle and choppy, vaguely head and shoulders pattern before the push higher. Then a march to the highs again in a linear channel, on declining volume. You should recognize the first as the high of 2007. This is the current market.
Here's how it resolved in 2007. You should know what came after:
The obvious major difference is that in 2007 we had gon through several years of an extended bull market. Rigth now we've had the first extended push off the lows of a crushing bear market. You could say right now resembles more 2002 - 2003 than 2007. But the resemblance of these charts is pretty striking I'd say. Here's another difference:
The VIX then:
And the VIX now:
And the VIX in 02 - 03
The most notable thing is in 2007 the VIX looked extremely bullish (market bearish) and there was a MASSIVE divergence between the VIX and the market. VIX hit new highs then pulled back to support, well off the prior low, and right to an ascending trendline, as the market hit new highs. This was a big bright red flag that the rally of 07 was suspect.Right now the VIX doesn't look anything like 07. Maybe some resemblance to 02-03...it choppy and kind of grinding lower. Market is right at old highs, and the VIX is right at old lows - no divergence there. VIX right now does look like it could pop - descending wedge into old lows on a 3 month chart. I still have some short exposure via credit call spreads (which, needless to say, are not making me money), but I priced my risk to hold to expiration so that's what I'm gonna do.
March has more turning points than any other month of the year. If the market tops out in the intermediate term, which I still think it will by April, I have no opinion as to whether it's the start of another crash, or just a correction. Either way the first move will be fast and furious.
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