Here's the current S&P 500 chart:
- Both had strong, nearly correction free rises off the previous summer's lows (29% since Aug 10 vs 19% since Jul 2006).
- Both at the end of February had three consecutive down days immediately after crawling to a multi-month high within nothing quite the same for months.
- MACD was just giving a down crossover signal.
It will be quite interesting to see if what follows now is similar to what followed in 2007:
A one day 3.5% drop two days later continuing to turn into a (top to bottom) 6% drop in little more than a week.
Clearly that is not "end of the world" stuff, but what's coming could be much worse 2007's end of February zephyr. The US and the rest of the developed world's economy is much weaker that it was in early 2007. Its more threatening for me this kind of minor loss is typically amplified in the gold mining stocks I'm holding (something I've learned the HARD WAY).
Just in case, I bought a bunch of S&P 500 puts today at the close to partially my large gold mining exposure against this kind of a correction. The puts cost less than 4% of my portfolio value, so even if those puts go to zero its not that bad (and I don't think they'll go to zero before I sell them). I kind of expect to make money on them and if I do make money to make a lot of money (offsetting large paper losses in the gold mining stocks).
When a correction comes, it typically comes suddenly and the S&P 500 seems quite overdue for such a correction (see part 1, click here). I can't claim a real edge here and this is not a prediction, but it is clearly a risk and I thought buying some insurance was the thing to do.
We'll see. Of course, everyone has to take responsibility for their own trading decisions and do their own due diligence and this, like everything else on this site, is educational and is not investing advice.
Leave me a comment if you think this "historical chart pattern matching" technique is either:
- Completely worthless OR
- Has some value.
Its what I've been doing lately because it seems to have some merit, but it might be too early to really tell.