Today, 2008.11.26, the day before Thanksgiving, had an unexpected, major rally. This after multiple reports reveal our battered economy. Why this rally in the face of dispair? Perhaps the markets foretold this weeks ago. Just like in
part I of History Repeating Itself, the repeated action was compressed in both time and size (price).
From looking at the chart below and analyzing the rally of 10/28 to 11/5:
- If you take the first two days in the move, you have a big up day, followed by a small down day. Compress these, and you have a single, smaller up day (11/21).
- The next two bars are up days. Compress these, and you have a single big up day (11/24).
- Then you have a "doji" day, one last big push up (~34 points), then a hard fall the next day (and couple weeks). This translates to 11/25 (doji), 11/26 (last push for ~34 points), and then ???
The final step is to proceed to fall hard like we expect. Will history repeat itself? If we are to repeat, then perhaps analyzing the down move will give us a glimpse into how the upcoming down move will look as well. Good hunting!
UPDATE (12/1): The rally extended into Friday (the day after Thanksgiving). This was was not a full market day and most everyone was on vacation. Therefore, I don't give this day much importance. However, it's now Monday (30 min into the open) and we are already trading near the open of 11/26 (the far right bar on the chart). So far, this idea is playing out well. I should also note that the first day in the last fall (11/5) produced a ~45 point fall. So, today's ~45 point fall (so far) is to be expected.
Lesson