Markets – Macro – Technicals

The Analog is (not) Dead

analogThe analog is dead, long live the analog. Actually we don’t know yet, but are likely to find out in the next 24 hours or so. The analog I refer to is the structure pattern of the years 1999/2000 that the $SPX has been following closely in the past few months. I first mentioned it last November in: Crescendo.

As then I repeat now: Analogs are no guarantees, they can disappear as quickly as they come, and many frankly dismiss them as coincidental. I’m generally not a big fan either, but last year I noticed a close relationship and I’ve been watching it ever since and it actually has provided a very profitable roadmap in recent months.

Let’s take a look on how it has performed on a structural comparative basis until now. First have a look yourself (1999/2000 on top, 2014/15 on the bottom):

SPX analog

I observe 8 key very consistent structural elements:

1. A rally in August

2. Roll-over in September

3. A key bottom in the middle of October

4. Large rally into December

5. Small pullback into the middle of December

6. New all time highs by the end of December.

7. January then saw corrective activity with price chop into month end (see 200MA).

8. Strong bounce in early February.

Now one can call all this a coincidence, but the flows show 8 consistent structures so far.

It is today/tomorrow we now see the analog take a key next step: A strong pullback into the end of February:

Feb 2000

Note that the month’s high then was made on the 7th trading day of the month. Currently US markets are right up against key resistance and we see a large gap up open.

I suspect the next 24-28 hours will tell us a lot whether the analog is still applicable. In lieu of it, the risk remains clearly to the upside as outlined in: Something Big is Coming.

And that, February correction or not, is also the message of the 2000 analog:

2000-rm

What’s the options market targeting for March? Look at the March $SPY open call interest. The largest open interest? 148,894 contracts. Where? At the $215 strike.

Mar OPEX

Go figure. Probably just a coincidence.

Right.

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