Riding The Gravy Train

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Thursday, March 14, 2013


This post is a continuation of this one posted yesterday, in which the promise was made that one more compelling reason for the 2/3 ratio would be offered.

From the strange-but-true category ...

Here's a look at the DJIA weekly chart, with two trends of obvious resistance illustrated:

Here's a 2nd look at it, showing that the angle of the 1st trend is roughly 18%:

2/3 of 18% is 12.  Here's a close-up chart of the 2nd section showing the angle of the 2nd trend:

Bonus:  Notice the red line at the bottom of the 2nd chart which shows the declining trend in volume.  We now have about 2/3 the volume and we can also see that when volume spikes it's when the market is dropping.

Given this week has seen some of the lightest volume days of the year so far, in fact some of the lightest volume days of the past several years, and given that the market is overdue to slide, it seems plausible that we'll soon have another event of volume rising above the red trend line as the market plunges.

Extra-Bonus: Notice that the 2nd chart above is a weekly view of the DJIA.  The 3rd chart is a daily view.  It's not just the resistance lines that are similar, but the chart themselves and the volume decline look virtually identical.  That's another way of considering yesterday's charts.

As was recently illustrated here and here, market turns have happened almost like clockwork the past few years.  Or should we say "calendar work"?

In fact, in all of the past seven years significant market turns began in the March-April time frame. 

Not shown in the above chart is 2007, in which the bottom was in March.  In 2006 there was a high in April that was followed by a significant sell-off.  The market did not hit new highs until late September.

Going back further, in 2004 through 2005 the market was essentially flat, with no major turns.  In 2003 the low was in March.  In 2002 the high was in March.  In 2001 the high was in May.  In 2000 the low was in March.

We've been talking about the DJIA here, as we always do, so for a change let's look at how this manifested in the S&P500:

In the 4-year chart above, on which we note the current trend of resistance that's immediately above present levels, as well as the steadily-declining volume, we've drawn a series of "ascending triangle" patterns.  It's easy to see that we're at or near the end of another such pattern.

Maybe it'll end differently this time?  We'll know soon enough, so for now let's consider a few more coincidences and charts.

The Daily Sentiment Index (per Trade-Futures.com) is notching its highest extreme since early May of 2011.  After that peak, the Dow declined 19% over the following five months.

Market Vane's Bullish Consensus is at a 6-year extreme.  The last time it was almost this high was just before the plunge last year from September into November during which the DJIA lost 1200 points or 8.8%  The Bullish Consensus reading was almost as high just before the market tanked last year from mid-March into June, during which the DJIA lost 1300 points or 9.7% 

The previous time it was nearly as high was just before the market cascaded from April-October 2011 during which the DJIA lost almost 2500 points or 19%

In this chart we show the NASDAQ, with a potential triple-top formation along the line of apparent resistance:

Here's that same chart, on which we've simply copied the 1st rally and pasted it on the right.  Compare it with the chart above.  There's very little difference between the two - the length and height are essentially the same.

That would only be a coincidence if the market starts dropping imminently, as would this be a whopper of a coincidence ... back to the S&P500 for a 20-year view this time, on which we also see a possible triple-top:

Lastly, a bit of spooky fun with the S&P500 and 2/3.  The bear market low for the S&P500 in 2009 was 666.  2/3 is of course also commonly expressed as .666

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