Historical Analogs: The Bernanke Pattern

• Posted by DynamicHedge
• on May 10th, 2012

Back in March I wrote a post called “Choose Your Own Adventure: $SPX 2013.”  There was, and still is, a notion that we are living in some sort of unique time where the markets are manipulated and even “rigged.”  Our ego presents us with the notion that somehow our time in history is special and nothing like it has ever happened or will happen again.  Fact is, the markets have always been manipulated and patterns have always repeated.  The post laid out some examples of similar runs and how they resolved.

I’ve gone back to the pattern recognition software and run the data again with the price action footprint since March to see which patterns we should be focusing on now.  I ran September 2010 – present and found the following instances of matching analogs.

Click on each instance and compare the patterns to present time.  I’m not trying to persuade anyone to abandon their bearish stance or get super bullish.  I just want to present the data as objectively as possible.  Remember, it’s only time.

For reference, here’s where we’re at:

Instance 1:

May 2009 – March 2011.  I’m starting with the most recent because I’ve recently mentioned this pattern as a distinct and important analog.  The patterns are so close that I’ve started calling them the “Bernanke Pattern.”

Instance 1: Aftermath

The result, as we can all remember was bullish throw over top followed by a deep correction.

Instance 2:

May 2005 – March 2006.  I felt a strong affinity for the 2005 pattern as soon as it was flagged by the program back in March.  It is proving to be quite on target.

Instance 2: Aftermath

The result was a prolonged throw over top and a correction of epic proportions.

Instance 3:

October 1997 – August 1998.

Instance 3: Aftermath

The result was a decent retracement of the correction followed by new lows (September 1999).  As most of us remember, the bull market highs were made in early 2000 and then crashed (not shown).

Before you mention the obvious fact that three analogs is statistically insignificant, please note that these were just the ones that illustrated the patterns best.  Of the nine patterns generated only one had any immediate large scale downside.  It appears that new highs, or at least a relief rally is on deck before any additional significant downside.  Note: more volatility and running of sell stops could be in the cards before this resolves, and anything can happen.  Be careful out there.

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