Technicals | Jul 09 2010
By Rudi Filapek-Vandyck
It has become a popular expression in financial circles in Sydney, in New York and just about everywhere around the world: this week's rally seems to have all the characteristics of the one that took off in March 2009.
The suggestion is, of course, that investors should not zoom in on the many fears and dangers that are still lurking around, but instead zoom in on cheap looking valuations and join the party.
Technical market analysts at Barclays Capital point out this morning there is indeed what seems to be a similar pattern on price charts for the S&P500 index between July 2009 and July 2010.
The one key characteristic that makes July this year look like a copy of twelve months ago is that the leading US index makes an initial false breakdown below technical support, which happened in both years, but then posts a rally higher instead.
It happened in 2009 and it seems to be happening again, so what's to worry about?
Taking a two-year look into the past, Barclays chartists note July 2008 showed exactly the same pattern. First what seems like a very ominous break below key technical support, and then a rally higher instead.
The problem in 2008 was that a little further down the track the rally proved nothing but a temporarily breather and soon the index trended back to the ominously broken support level in July, and then gave in for bigger losses.
Said chartists are at present bearish on risk and on equities, so their bias is towards a repeat of the 2008 scenario (though not necessarily of the same size), more so than to expect the next big rally a la 2009.
For now, however, historical patterns appear to be pointing into the direction of a new rally. Whether this rally proves to be a repeat of 2009, or of 2008, will be determined a little further into the year.
