I have been incessant (I know) in looking at my 1990/2000 and 2007 analogs as well as backdrops to navigate these markets which has served me pretty well (So far)
The 1990 analog was very Japan focused while the 2007 was very "US Bond market focused" (with a particular focus on the 2-year yield path)
From an equity market dynamic both 2000 and 2007 were competing for the best analog/backdrop....but increasingly the price action seen today has more resembled 2007. I have not commented much on this recently as I have waited for price action to play out to a point where we arrived at a pivot- ie breakdown or confirmation.
History suggested that that could come in the first 2 weeks of October, so it is time to have a look.
Below is a chart comparing the 2006-2007 price action on the S&P and 2023-2024.
As you can clearly see these charts are not identical, but they clearly rhyme.
How was the top put in, in Oct 2007?
After the July-August 2007 fall 0f 12% (BTW in both years the initial top was put in on July 16th) we saw the market bounce and set a new all-time high by 1.3% the week following a weekly close above the July high.
It closed a 2nd week above that level and then on week 3 we saw a strong weekly close back below the July high posting an evening star on the weekly chart.
From early 2007 to the peak, we also saw significant momentum divergence on the weekly chart
That was the start of the real turn that saw the equity market fall sharply in Q4 despite the 50 bp's cut on 18 sept, 2007 and 2 further 25 bp cuts by year end.
What has happened so far this time/
After the July-August 2024 fall of 10% we saw the market bounce and set a new all-time high by 1.7% the week following a weekly close above the July high.
It closed a 2nd week above that level, and this is week 3.
From early 2024 to the peak, we have also seen significant momentum divergence on the weekly chart.
A strong weekly close below the July peak at 5,670, IF seen (I would define strong as in the 5,605 area FWIW) would give us a picture very similar to that seen in October 2007 and suggest elevated caution about the danger of a move to "stirred" from "shaken" and renewed losses of note.
