By: Jeff Cooper
Hit and Run Morning Stock Report: October 26th, 2022
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A Surprising Discovery
Previously I have shown the similarity of the price patterns of 2008 and 2022.
Look at the charts below
Note the white vertical line is August 2009. That is the time that compares with the current readings in the chart that appear to be most similar to the current chart.
That is precisely the time leading up to the crash of 2008.
Now, remember recently I showed that the monthly slow stochastic on the SPX was as oversold at the 2009 low and that there was a positive divergence on the weekly chart.
See below
Interestingly there was no such positive divergence during the bull market at the 2015/2016 lows, the 2018 low, or the 2020 low.
However, I scrolled back to August 2008 and was surprised at what I saw.
First look at the dark blue highlighted area in the chart above.
The divergent buy signal in 2008 is right there (yellow up arrow).
The light green highlighted area shows what follows…and it’s definitely now what you would expect after a bona fide weekly divergent buy signal.
Suffice it to say that when deeply oversold monthly readings and rare divergent buy signals can potentially lead to a crash scenario…things are clearly ‘strange’.
But then October is the strangest month of the year.
In sum, setups are just setups and signals are just signals. When multiple big-picture buy signals don’t work the contrary may play out.
In other words, if the market can’t go up from these signals, it may go down hard.