Saturday, September 10, 2011

Is The Market About To Collapse?

Or, why I'm not short this market.  The first chart below shows the Nasdaq 100 index in 2008 with a vertical line at the point that the waterfall decline began around the first of September 2008.  What is clear is that the market had made a lower high over many months and as it rolled over the 5 day, 10 day and 21 day price rates of change were falling and negative. 

Moving to the current situation, the next chart shows that the current rebound is only two months away from the most recent high and price rates of change are rising/positive.  In particular the 21 day price rate of change is positive and rising.  So, even if there were to be another waterfall decline/crash scenario, we are probably weeks to months away from it happening.

So, in the scheme of things where are we?  I think the current situation is more like January/February 2008, and a two month plus rally is about to begin.  Perhaps there will be a retest of the August low, or perhaps we will just see some backing and filling before the rally gets moving.  I'm not suggesting that after the two month rally is over, we will see another crash setup like 2008.  Far from it.  I think the pattern will be so close that it will make people believe it, but instead we will probably see another 2 year rally.  I know that sounds far out to most, but we are just not witnessing the convergence of factors that would lead to a crash at the present time, IMHO.

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