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The Morning Cup of Jo


Can it be?


Trademark Pending

Good morning Minyans. After last week's downtrodden I felt it apropos to discuss similar chart patterns in the past and what's transpired after these comparable technical patterns have taken place. First we'll take a look at today's IT & LT chart of the SPX and compare it to 1971's. By looking back at my study on the Dow 100-year chart, coincidently or not, today's comparison approximately coincides to the length of time the market was in its Mega Consolidation back in 1966 - about 4 ½ to 5 years in.

The first chart shows the SPX since the March '03 lows. Here you can clearly see the up trend and ensuing Broadening Top consolidation pattern. {A broadening top formation is nothing more than a flipped ascending triangle.} You should take note of the extremely oversold condition of the stochastic. As I've stated multiple times in past 'Jo's,' "Just because the market is showing oversold secondary indices, doesn't mean it won't become more oversold." The stochastic is famous for being able to sit at oversold or overbought levels for long periods of time.

However, when the stochastic becomes this oversold it will, more than likely, lead to a retest or undercut of the current price level after a bounce. Remember the 'Jo' about "The 4 B's and a D?"

WONDA Copyright 2004 William O'Neil + Co., Inc. All rights reserved

Turning back time... After coming off the lows set in 1970, from the 1966 top, the SPX had a very similar, if not identical, pattern.

I have found that looking back in history has helped me become a better techie by simply getting a better picture of what has transpired in the past. Many times you can find instances of similarity on the daily or weekly charts. What is difficult to find is a pattern that fits both. Nonetheless, take a gander at today's weekly chart and compare it to 1971's weekly chart.

WONDA Copyright 2004 William O'Neil + Co., Inc. All rights reserved

WONDA Copyright 2004 William O'Neil + Co., Inc. All rights reserved

Both of these weekly charts are showing comparable stochastics and price action.

On to the finale. Here I have shown what transpired in 1971 after these patterns were in place.

WONDA Copyright 2004 William O'Neil + Co., Inc. All rights reserved

WONDA Copyright 2004 William O'Neil + Co., Inc. All rights reserved

Notice how the price undercut the prior reaction lows as the stochastic showed divergence on both the daily and weekly charts.

"Is it Live, or is it Memorex?"

I hope this helped!

Until next time...


No positions in stocks mentioned.

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