Will history repeat itself like 1999?

50% upside between Oct and Dec...

<img src="http://www.alchemyoftrading.com/files/Nasdaq%20Comp%201999.png"

 

nice find, I doubt it though.....1999 was 1999..

 

Or 1987??

<img src="http://www.sniper.at/crash-87/stock-market-crash-1987.GIF"

 

Many would lean towards 1999 rather than 1987. Reason is everyone has the attitude that nothing can go wrong now, profits are high, unemployment at record low, inflation is contained, economy coming in for a softlanding.

 

As most of ET knows I've been a stubborn, albeit small short in ES for a few weeks. I would have thought the only chance of a mega year end rally would be predicated upon a GOP sweep in November. Even though I'm a Republican, and in fact a former GOP Congressional candidate myself, I've thought the chance of the Republican's holding a majority in the House as extremely doubtful. Hence I adopted "world view" that stocks would break in October as the story of Republican demise took hold. Alas in the past two weeks the GOP majority has fallen from a 57% bet on Tradesports to a 37% bet. What's the market done? Rallied to high hell!!! I had the news right but the directional index play dead wrong.

This could mean two things. Either the market is so incredibly under valued that it's going to RIP THE FACE off of shorts who're selling it on unimportant macro political analisys OR the macro political stuff WILL matter two weeks from now but only AFTER every early short has been run out.

I still subscribe to the latter.

Since 1994 only in the pivotal election year of 2000 has the market failed to rally in Q4. That's quite a streak! I think it ends. CLEARLY sentiment has been overly bearish and by being short the past few days I've violated a cardinal rule of being short on light volume, new high days. That means there's nothing for sale. It hasn't been new longs popping this stuff as much as shorts chasing the little that's being fed out. Century old axiom: Sell short covering rallies.

With rates low (although blipping up a bit this week) and P/E's reasonable I don't see a "crash" scenario. But I do see the steepest correction in four years around the corner or at least the odds being acceptably high enough to justify a short campaign.

 

IMHO

 

Using history as your guide you can probably find just about every possible scenario.

 

If you're the mean reversion type I guess the market needs to pause while earnings catch up or sell off or a bit of both...

 

Interesting hypothesis. If true, we would be looking at a drop to around 6500. Is that what you're looking at?