Saturday, August 20, 2011

Are You Ready For a Crash?

I warned that the rally of the last week was nothing more than a snapback move from oversold conditions.

Indeed, these kind of sharp moves are normal for market collapses. As I’ve noted, during the two months of October-December 2008 we had three sharp rallies of 11%, 17%, and 20% respectively. Every time the market rolled over hard soon afterwards.

We’re seeing the exact same sort of moves today. Indeed, this last snapback rally was about 10%. And the market has rolled since rolled over hard. Whiping out nearly all of the gains post the Fed FOMC meeting in just two days.1,175 didn’t offer any support for the S&P 500. By the looks of it 1125 won’t either, which leaves the next place for a likely bounce at 1,075 or so.

As I’ve pointed out many times, Crashes follow a well known pattern. That pattern is:

1) The initial drop

2) The snapback

3) The REAL Fireworks

This latest collapse is following this perfectly. The bounce is now ending and we’re going into the REAL fireworks.

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