By: Chris_Ciovacco
Does the current market look more like 2004 or 2007? The answer is important because stocks did well from August 2004 to October 2007, but they performed very poorly between October 2007 and March 2009. The fundamental picture remains quite uncertain with:
- Debt problems in Europe and the U.S.
- Inflation in Asia
- Central bankers with limited ammo
Based on a detailed study we just completed looking at market profiles dating back to 1981, there are similarities between the current market’s technical profile to both 2004 and 2007. The study can help us understand what to look for in 2011-2012 and if the implications lean toward bullish or bearish outcomes.
Why did our study begin in 1981? Fair question; the answer lies in the availability of detailed technical data. The study used historical values for the CCM Bull Market Sustainability Index (BMSI) and the CCM 80-20 Correction Index. You can use the links in the previous sentence to see the long list of technical parameters incorporated into these proprietary market models. This data is not easy to find going back into the 1970s.
The study looked at an extensive array of technical data based on daily, monthly, and weekly charts. The varied time frames help us zero in on periods in history where the balance of greed and fear in the markets was most similar to what we have today. After running historical data through the process shown in the flow chart below, four periods remained beginning in 1984, 2004, 2005, and 2007.
The video below compares these periods to the present day and highlights both bullish and bearish signals that may emerge in the coming weeks. These signals can help us better access the market’s risk-reward profile within the context of today’s fragile fundamental backdrop. The charts covered in the video are also shown below the video player for further study
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