March 15th, 2011
You have a long list of fundamental reasons from which to choose when looking for an explanation of the 5.11% correction (so far) that began with the 2.0% decline on Monday, February 21. You can now add possible end of QE2, Middle-East political unrest and the Japanese earthquake, tsunami and nuclear disaster to those I list at the end of a January 11 post entitled “Pivot Points and Sell-Fulfilling Prophesies” which included.
The point of the piece was that, at the time (the S&P 500 closed at 1280.26, almost exactly where it is today before it peaked at 1343.01 five weeks later): “the market is edging ever closer to a zone (1300-1350) that has seen six pivots since 1999…..No one can predict what the market will do now but there’s a good chance the market, in its pursuit of symmetry will replicate the 2008 pattern.” I then included the following chart (click on image to enlarge):
It’s the old question of cause and effect, chicken or the egg, market move and explanation. I’m no psychic. Obviously, I wasn’t prescient enough to predict on January 11 the Libyan revolt or the earthquake and tsunami. What I did say was that the market was due for a correction and when it did happen, the analysts and talking heads would come up with believable explanations for the market’s reaction.
Here we are, two months later, with the market having pivoted at 1343 and beginning the the downside leg half of that correction. If the principal of symmetry holds true, the correction should take the market down to the 1220-1250 area, or down 8.5%.
It’s interesting to note that 1220 as another significant resistance/support trend line connecting two major pivot points. I hope that it won’t go that low but it wouldn’t be surprising if it did. That level would make this correction close to being symmetrical to the one in 2008:
What would explain a turnaround at that point? We could guess but it would only be speculation, no matter how informed and knowledge we were. But we can be confident that when the market does turn again, the analysts will again come up with a many plausible reasons to offer for all who won’t be satisfied with “symmetry” as the explanation.