Stock Market Top, Were So Close!

By: Graham_Summers

I’ve shown the below chart several times before. It depicts the S&P 500’s performance since its March 2009 bottom. As you can see, the market has been carving out a near perfect rising bearish wedge: a rally in which the trading range becomes tighter and tighter the higher the market rallies.

This is a classic topping pattern in the sense that it typically precedes a large move to the downside. All you need is for the market to break below the pattern to the downside. And as you can see, we’re sooo close to seeing this breakdown. When you consider that this pattern is completing on rapidly dwindling volume, you have the makings of a VERY serious collapse.

It’s also interesting to note that a near identical pattern has formed from the July lows (when the latest leg up of this current rally began). Looking from this perspective, it appears the market has some additional upside to it before the pattern is broken.

However, I want to draw your attention to the absolute collapse in volume in the last few weeks. This tells us that we do indeed have the makings of a Crash here. This chart is literally screaming “no one is participating in this rally any longer” (remember 70%+ of volume is high frequency programs trading blocks of shares back and forth, NOT real buyers like you and me).

Remember, technical analysis is an art, not a science. And depending on how you slice a chart, the projections may differ. This is why I am comparing the rising bearish wedges from both the March and the July lows.

However, the fact that both charts depict a near identical pattern (with the only difference being in terms of WHEN the breakdown occurs) lends greater weight to my belief that when the formation does breakdown, the move will be severe.

Throw in the accelerated drop in volume and you’ve got a VERY, VERY ugly breakdown coming within the next month or so (I’ve said numerous times the Crash will be between September and December).

Watch the next few days closely. Stocks are showing serious signs of a major breakdown ahead.

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Good Investing!

Graham Summers

http://gainspainscapital.com

Graham Summers: Graham is Senior Market Strategist at OmniSans Research. He is co-editor of Gain, Pains, and Capital, OmniSans Research’s FREE daily e-letter covering the equity, commodity, currency, and real estate markets. 

Graham also writes Private Wealth Advisory, a monthly investment advisory focusing on the most lucrative investment opportunities the financial markets have to offer. Graham understands the big picture from both a macro-economic and capital in/outflow perspective. He translates his understanding into finding trends and undervalued investment opportunities months before the markets catch on: the Private Wealth Advisory portfolio has outperformed the S&P 500 three of the last five years, including a 7% return in 2008 vs. a 37% loss for the S&P 500.

Previously, Graham worked as a Senior Financial Analyst covering global markets for several investment firms in the Mid-Atlantic region. He’s lived and performed research in Europe, Asia, the Middle East, and the United States.

© 2009 Copyright Graham Summers - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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