Friday, 19 July 2013

Uncanny similarities between S&P 500 in 2013 and Silver in 2010-2011: 2013-07-20

I have noted some close similarities between S&P 500 in 2013 and Silver in 2010-2011 in terms of their trading.

It might be possible also to pull gold into this group.

1. They are all following a ‘3 peaks and a domed house’ type bullish then bearish longer term chart pattern. Gold showed this most strongly between summer 2010 and he present day, almost completely undoing all the gains since the pattern started at $1155. The 3 peaks to stert the pattern in gold were actually the quadruple top that formed in late 2010. With the S&P 500, we have 3 even more distinct peaks that formed in 2012. Silver’s initial peaks were not as obvious but the S&P has started to follow silver more closely in other ways.

2. I noted on this blog in July 2011 that silver and gold’s chart patterns were similar in 2009-2011, with silver leading by up to a year. When silver peaked in May 2011 and gold peaked in September 2011, the time gap had narrowed to 4 months. At the time, I was looking for a possible breakout in gold and a blow off top, which actually happened by early September of that year. I did not fully realise at the time that the charts were in the 3 peaks and a domed house formation, that would predict crashes for both commodities. As the silver crash materialised, I began to feel that a move to the $300 level in gold was getting more likely and, on fully recognising the gold chart pattern a move to $1155 was possible.

3. Present trading in the S&P 500 has now become uncannily similar to silver’s trading across Christmas 2010 / New Year 2011. The gold guru Jim Sinclair often said that all you need in charting is to have a straight line ruler or a set of parallels (as used in the Navy) and to be able to identify uptrends and power uptrends (and the corresponding downtrends). Well, here we are! 

Silver broke out in late August 2010 and entered an extremely stable and strong uptrend, moving from about $18-$25, followed by some increased volatility but a quick resumption of the uptrend until $31.27 was reached. The average price increase was around 10 cents per day over this period. What followed was an almost perfect textbook 38.2% Fibonacci retracement of the upmove, a correction taking the price to about $26.30.

What followed was a new uptrend, a power uptrend, steeper than the previous one, with an average rate of +19 cents per day.I reckoned at the time that silver might reach $50 by the end of May 2011Silver broke back upwards through $31.27 and then went on with some volatility to the $49.75 top in early May. Since then, silver crashed and the above chart clearly shows that all the gains from the uptrend and powertrend have been undone! 

The S&P 500 has now done just the same. It had a correction after peaking at about 1687 in late May 2013. The correction took the index to around 1560 by late June. Since that low, there has been a sharp rally to a high of 1692, which has now just surpassed the previous high. The slope of this new power uptrend is steeper than the original uptrend, about twice as steep, as it was for silver.

If the S&P500 follows silver, the power uptrend will cross the original uptrend and break out of the top of it at around 1850 on the index (as it did for silver at $40). The timing for the index reaching 1850 (the blue circle) could be around September this year, just in time for an October crash.

However, there be an additional upside blow-off move, maybe even to 2000-2500 on the index, if the price breaks out to the upside into a parabola. Then, if the S&P follows form, it could crash back down to 1039, where the 3 peaks and a domed house pattern began. A doubling, then a halving all within a year, as for silver - and similar in form to gold’s move too.

Silver's price action was not exactly the same. Looking back at the silver chart, the power uptrend took a small correction as it was crossing the first uptrend. It then took off for its parabolic accelerating move to $49.75 before crashing. Perhaps we could see another realtively small correction on the way, followed by a parabolic upside move back into the power uptrend channel.

I am going to do a bit of number crunching to see what a feasible target could be. If tha patterns are coincident, 1850 would be a start, where the power uptrend crosses the uptrend. As I write, the price is on the median line of the main uptrend pitchfork pattern and also right at the May 2013 high, so the market is at a key level (much like silver in February 2011, when it reached $31 for the second time).

Peter Grandich on the Korelin Economics Report said here:
that it is possible that the conventional stock market might hold its own until Labor Day (August Bank Holiday in the UK). That would agree somewhat with the above charts, where stocks could peak in September.

Even so, there has been a slight downward correction in the Dow:Gold and S&P500:Gold ratios in the last week or so. However, in ths gold bear market, we have seen these before:
The spanner in the works is if the S&P500 and Dow make double tops here right now. They have so far been lacklustre in passing their previous highs, unlike silver when it passed $31 in February 2011.


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