From fiendbear.com
The differences: The market wasn't shut down. Volatility was much higher this past Monday (48.33) compared to last October (39.96). Last year, the Dow peaked at 8,259 almost three months before its mini-crash in October. Monday's mini-crash came only six weeks after the index's peak of 9,337 back in July. Although the Dow hit a peak in August of 1997, the NYSE advance/decline line moved steadily higher and hit a new record in early October. The ability of the broader market (positive divergence) to advance while the Dow struggled was line, indicative of underlying strength. Leading up to the Dow's most recent peak in July, the NYSE advance/decline line had been a very serious downtrend (negative divergence) for the three previous months. In June of 1997, the Dow's momentum hit its highest level since the bull market began in 1982. Momentum thoughout the summer remained very strong and in July, the Dow got as high as 19% above its 200 DMA. The last time it had shown that much strength was a month before the 1987 crash. More recently, momentum on the Dow was much more restrained and at its peak in July, it was only 10% above its 200 DMA. Last October, the mini-crash put the Dow 3% below its 200 DMA while on Monday, the Dow finished 12% below its 200 DMA. The number of new NYSE 52 week lows totaled 179 after last October's mini-crash. On Monday, they totaled 1,183 which was the highest ever recorded. Conclusion: Although on the surface it appears as if the last couple of days have been a big deja vu, the situation is actually more serious technically. The broader market has suffered tremendously and it is going to take a long time to repair it. At best, the Dow will have to meander at its current levels and give the broader market (as represented by the Russell 2000) a chance to recuperate. The worst thing that could happen is for the Dow to recover sharply while leaving the broader market in the dust again. I'll be watching the NYSE advance/decline line very carefully and no rally is to be believed (or respected) until there is a vast improvement in this indicator. end |
