This is a big, rounded top. It’s taking its time, though it is still compressed relative to the ’03 – ’07 cycle wave top.
This week’s strength was very impressive and could mean new highs on the Dow and SPX in the next couple of weeks if that previous wave is any guide. Our January-February ’10 drop was akin to May-June ’06, Feb-March ’07, and July-Aug ’07. Tops are processes, bottoms are events.
Prophet.net
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Maybe the VIX will even scoop out a big rounded bottom and fall several more points:
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Note the advance:decline ratio I threw on there as well. This was a big up day relative to everything since last summer, with 5 stocks up for every decliner. These spikes during a bull trend tend to foretell that prices will drift up some more, though not always, and they do occur in bear trends as well, when they simply serve to clear the way for a resumed decline, as in late Sept ’08. There is still a larger declining trend in the A:D spikes, indicating declining oomph during the strongest rallies, as in the year leading up to the Fall of ’08.
The A:D ratio is also a measure of jumpiness. You can see how it spiked up as fear crept into the game in summer ’07.
Of course, this market is now extremely short-term overbought and treading on very thin ice, so it could just plunge at any time. This could have been our clearing rally.
You can see that the daily A:D was nothing like earlier last year, but you still have to respect this signal.
i agree with the new high theory, while Robert Prechter mentions he thinks we won’t get a new high on the Dow
With nothing real negative on the horizon, this top could continue to form for awhile. Might have to wait until 1Q or 2Q earnings. Same with commodities, any correction seems a little ways off. The bullishness, inflation scare, and end of QE is setting up a nice entry point for treasuries.