Mauldin's more-alarming afterthought: a chart argument made by Bill King in his daily King Report that the S&P 500 action after June has produced what King calls a "W pattern" with three forays up to 1,280-1,300 separated by two down to 1,220.
Ominously, King notes, that's just what happened before the 1987 Crash. King wrote: "We are NOT suggesting that a 1987-like crash is imminent; but we are warning that 'W' formations can lead to dramatic market reversals.
The current stock market is in a weaker technical position that it was in 1987 as evinced by its position to its quarterly and yearly moving averages. In 1987 interest rates were much higher, but the economy was stronger and the US trade deficit problem was in its embryonic stage."
King's conclusion: "The moral of the story is stocks need to rally sharply from here to negate the 'W' pattern, or on any decline stocks must NOT breach the base of the 'W' pattern." (i.e. 1,220). If a stock decline violates the base of the 'W' pattern, Big Mo, as in 'Momentum Players' will be unleashed by traders and investors and he will be hurling red tickets."
DOW Price at posting:
0.0¢ Sentiment: Buy Disclosure: Not Held
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