We have all heard the phrase “ Past performance is not indicative of future performance”. If that’s true, then why do we bother to study charts?
We have all of these funny sounding metrics we look at – MACD, RSI, Fibonnacci retracements, Stochastics and the like. Why bother looking at the past equity behavior if it doesn’t tell the story? Well, perhaps it’s another common phrase we hear that motivates us to spend our time on such things. It goes something like “Those who cannot remember the past are condemned to repeat it.”
We have all witnessed an amazing rally in our stock market during the month of October. It seems that we went from the world ending to everything being just fine in a matter of weeks. Now what? What can we look at in this market to decide what might be coming next? ( Here comes the scary part…)
The chart on the S&P today has a striking resemblance to the S&P’s chart back in the 2007/2008 time frame. In January 2008, the market had a breakdown from what technicians call a head-and-shoulders formation. The market fell to a sharp initial low, treaded water for some time, then successfully retested the low and headed higher for a time. Unfortunately, if you were long the market, the uptrend ultimately failed despite the fact that the recovery rally took the S&P back above what had been former support in 2007. If you look at the current chart, things seem to be similar in a spooky way. The breakdown in August could have been seen as a head-and-shoulders top. We have seen a retest of the initial low made in August and now are in a recover rally taking us back above former support around 1250. The concern is that, should history repeat itself, the rally may prove to be unsustainable beyond the short time.
Trick or treat? Time will tell.
Karen Smith
OptionsANIMAL Instructor
Options Trading Resources
options trading system * options trading class * trading options courses * online options trading * online options education trading * options trading example * learn option trading * live investing workshops
