Following the '03'07 Template?


History says we should test the lows at some point in the next few weeks. . .

History says we should test the lows at some point in the next few weeks. The fact that we ended well off the lows does muddy the picture at bit, as most "crash" days have ended at or close to the lows of the day. So perhaps this time will be different.

I'm going to point to an interesting parallel that I've been watching.

S&P 500 Large Cap Index 5/6/10

I've noted that the first and second leg of this bull roughly followed the same pattern as the '03'07 market. The correction following the second leg copied the '04 correction if not in duration in magnitude.

I've speculated that this bull would bypass the middle phase of a "normal" bull and move straight into the final phase.

In '06, the final phase began with a 7-month runaway move. We certainly saw a runaway move out of the February 5th bottom. I must admit I thought it would last a bit longer than 2 1/2 months, but I guess we shouldn't be surprised as everything has been unfolding much faster during this bull.

In '07, the runaway move ended with the mini-crash in February. Yesterday certainly qualifies as a mini-crash. So we are still following the '03'07 template. If the pattern holds, then we should expect a recovery soon and a final surge higher into an ending blow-off top.

From there, we should roll over into the next leg down in the secular bear market.

Not that I want to buy into a secular bear market, but sometime in the next couple of weeks we should get a intermediate buying opportunity. . .unless this time is different and we just continue lower from here.

Gold Scents is a financial blog focused on the analysis of the stock market and the secular gold bull market. Subscriptions to the premium service includes a daily and weekend market update emailed to subscribers. If you would like to be added to the email list that receives notice of new posts to Gold Scents, or have questions, email Toby.

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