In mid-August I pointed out that the selloff that the S&P 500 was in at that time was different than past selloffs, technically.
Since early 2012 every selloff in the S&P's (CME:SPU14) bull move was almost a “carbon copy” of the previous one up until the one that occurred this August. The one and only difference this time was the major key reversal top on the monthly chart. That had never occurred before and technically could make a difference as technically that suggests a trend change from up to down.
The question was, would it be enough to finally put a longer term top on the market? It was not. That key reversal top on the monthly chart was taken out yesterday. So now what?
The last major break in the S&P was in October 2007. It totalled 921.00 points. The next steepest decline after that one occurred in 2011 and the correction was only a third of what occurred in 2007. So when will one comparable to the 2007 one occur? Isn’t that what everyone is waiting for? But let’s back track.
In March 2000 the S&P 500 topped and corrected 807.00 points. (That’s close to the category of the one that occurred in 2007). That was a 2 year, 7 month correction. It then rallied for five years and topped in October 2007 again. That is when the 921.00 drop occurred. That took 1 year, 5 months. That bottomed in March 2009. So there is somewhat of a pattern here in terms of corrections.
The rally that peaked in 2007 was a five year bull move. The current rally has gone beyond that an additional five months. So one would think a correction is overdue. But is it?
From the peak in March 2000 to the peak in October 2007 took 7 years and 7 months. Add that to the October 2007 peak, maybe it isn’t overdue afterall? If so, this rally could technically go until May 2015 before it matches the length between the two previous tops. But the fact that this rally has already outpaced the one that peaked in 2007 by 506.75 points could add further vunerability to the market too.
Irrespective this latest key reversal top was an attempt to form a top. It could not follow through this time. But it is a warning and any further technical efforts should be paid attention to particularily since the market, time wise, is moving into the time frame where its vunerability to a major correction is reaching a potential “ripe stage” from market top to market top. Also the bull move that peaked in 2007 was a 5-year process. This bull move surpassed that time frame in March of this year. And to add further fodder to the situation this bull move has exceeded the previous one by an additional 819.50 so far.
Based on the technicals the s&p could be moving into a very “ripe stage” and the key is to watch the next attempt by the market to form a top technically. It may succeed next time around.
Ed Note: Every day traders can listen to live, streaming squawk box commentary on FUTURESmag.com coming directly from the S&P trading pits in Chicago.