Tuesday, March 24, 2009

DoctorMad Update – A Mini 03-07 Bull?

The good Doctor has a hypothesis that this run may go parabolic much like the final run up to the ’07 top…
So is the market using the same play for this retrace that played out on the much larger time frame during the 00-03 bull run? Compare it to this NDX 20 day. This is a type of bull move I have seen other examples of in a variety of stocks/ETFs on a whole range of time scales. The market uses only a set number of "plays" like this one when executing price moves. Some of the easier ones are defined by basic EW. Some of the more complex patterns captured best by channels is what I am trying to build a library of.

If you play out the touches along the channel, this afternoon was the equivalent of the start of the 06 decline into the double bottom before the final launch. This would play out as a fairly weak retrace maybe to 775 SPX just enough to scare a few bulls, but not really pay the bears.

Then we surge to new highs in a move that will have bears questioning their thesis and everyone convinced the bottom is indeed in. That final surge just like the one in 07 will suck in all the bulls and get a good number of bears to cave. The price level will be determined by how much ammo the bulls have and how many bears cave in. I actually don't think there is all that much ammo out there so a top around 880 could be it. Wherever the top is, it will be at a point of maximum bullishness. The flag pole up, followed by shallow ascending channel, followed by a final pole up is a brutal pattern that leads to destroyed shorts if you’re not very careful.

The timing of this means the top will probably come some time early to mid next week. I bet this Friday is another bear crusher and the start of the final pole up. Bulls will be dancing in the spring time. Only to get their bells rung before the flowers even bloom.

- DoctorMad

Thanks for your thoughts, Doc. I think everyone needs to be real careful out there in both directions.