I found an interesting pattern to the fall 2008 SPX and current market on a weekly chart. Remember the thing about patterns as Jesse Livermore discussed they repeat because they are really showing investor emotions.

Emotions are high right now as they were in 2008. No one thought Lehman would fail while everyone believed TARP would stop the equity slide. Today no one believes BAC will fail and Eurobonds will save the day.

Here’s the pattern as labeled on the graph below.

Point A is the market top

Point B is the first fail of the 200MA

Point C is the bounce which also failed to stop at the 200MA

Point D is the second fail of the 200MA

Point E is the subsequent back test of the 200MA but unlike Point C holds this time and begins the major slide in equities.

As far as where we are today, Points A, B and C are identical in both fall 2008 and now. The question is where is Point D and I surmise it is 1050 (plus or minus a few handles). There is a lot of support in that region and there are a lot of nervous shorts waiting to lock in profits at the first sign of oversold conditions as we are approaching. In 2008 Points B and D were separated by 50 SPX handles while Point D pierced the bottom Bollinger. Both conditions would be met at 1,050.

Point E would then be the first successful back test of the 200MA around 1,135 setting up the real leg lower in equities.

Images: Flickr (licence attribution)

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