Monday, July 31, 2017

A Study of the Primary Trend For US Stock Market in 2007

Mailbox
Q:

Post suggestion -

Eric De Groot would be interesting to look back at the computer readings / signals pre-crash ~10years ago.

Warning signs, anomalies, extreme readings, etc?

What can we learn looking forward.

A: The 'anomalies' which few recognized and would recognize again must be defined as follows: primary trend (price and volume), secondary trend (price and leverage), TIME (influence by impulse length and long-term cycle concentrations), and sentiment trend.

Primary Trend

The primary trend was bullish, headlines were bullish, and the majority (public) expected nothing less than higher prices because stocks aligned up impulse, a trend that ended 12/28/07, had been ongoing since 5/15/07 (chart 1). The computer, showing BuST readings above 2, was screaming BE CAREFUL bulls. Even if I published a warning about the rising probability of a reversal twice a day for all of December 2007, almost no one would have listened. Compression, a rare reading in the S&P 500, materialized on 1/4/08. Soon after the primary trend shifted from aligned up (green box) to unaligned (yellow box) and eventually to aligned down (red box). The primary trend stayed flipped between yellow and red (key observation is never green) until 2009. This is only the primary trend. There were many other confirmation and warnings in 2007 and 2008.

Chart 1


Sentiment Trend

Sentiment, an extremely important trend ignored by most if not all investors, warned of trouble ahead for the bulls well ahead of the primary trend. The long running bull phase (green box) that begun in 2006 turned to bear phase (red box) in late spring of 2007. This transition took place well ahead of the primary trend. Despite several short upticks, the bear phase remained until the spring of 2009.

Chart 2


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