Mystery Chart

Posted by downtowntrader | 10/09/2008 08:49:00 PM | 0 comments »

Let me go over some numbers before I reveal the two mystery charts below.

  • The first chart has a two bar drop of 26%.
  • The second chart has a two bar drop of 33%.
  • The two bars in the first chart occurred under the 20 and 200SMA (red and pink).
  • The two bars in the second chart began above the 20 and 200SMA (red and pink).
  • The first chart shows panic selling well after a top (over 20% from the last high).
  • The second chart shows panic selling just after making a new high.
The reason I highlight where these drops occurred is to show that panic selling can appear in both bull and bear markets. Usually, panic selling results in a major low once the selling subsides. The first chart is of a current issue after todays selling. The second chart is a historical one that went on to drop marginally lower before bouncing sharply. It did however, revisit the lows very soon thereafter before successfully marking a major bottom. What am I charting here? (see below)

The first chart is a weekly chart showing the SP-500 over the past few months. The second chart is also a weekly view of the SP-500 showing the crash in October 1987. While most of the damage to the second chart happened on "Black Monday", the end results of both are very similar. In fact, tomorrow may push the first chart even lower. I hate to speculate on how this will look a week from now, but I would think that there will be a much stronger capitulation since this powerful push lower is occurring after months of selling, rather then catching people off guard.

Let's see how the week ends tomorrow, but it looks like we will be off to a negative start in the morning (Down 2% in overnight futures).