During the summer of 2011, the debt ceiling debate took the
blame for sending the stock markets (NYSEARCA:IWM) down 20% from
May to October of that year.
Will 2013's debt limit drama cause the markets to behave similarly
to 2011? When it comes to what really matters, 2011 and 2013
are looking eerily similar; and few people see it coming.
Is this just a mere coincidence or should we pay more
Then vs. Now
There are certainly many reasons coming out of the mainstream media
for 2013's debt ceiling debacle to be different than 2011's.
Reasons such as Europe (NYSEARCA:VGK) being not as big an issue
today, as well as promises from the ratings agencies that the
U.S.'s credit rating (NYSEARCA:TLT) is secure are the more popular
But do these reasons really have an effect on the markets?
Meanwhile, Europe still has had negative GDP growth 6 out of the
last 8 quarters, its stock market (NYSEARCA:IEV) is still down from
its 2011 price highs, and the ratings agencies are always late to
the game in assessing risk. Their last downgrade of the
U.S.'s debt occurred only after the markets had already fallen over
10% from their summer 2011 highs!
Following the news headlines coming out of Washington will get
you nowhere too. We prefer a simple but comprehensive
approach, which by the way, shows we should be very cautious
A Sober Analysis
Take a look at the chart below; it's a similar version to what
was provided recently to our subscribers.
The chart displays the stock market (NYSEARCA:SPY) since 2010
overlaid with the stock market of today (SNP:^GSPC) with a goal of
aligning the two time periods to see if the market today is
repeating in a similar fashion to the market of 2011. Notice
Today's market (NYSEARCA:SSO) is very much repeating similar
patterns to 2011's.
In the upper left is the S&P 500 through 10/7/13 moved back
in time to align to the 2011 debt ceiling timeline. The blue
line on the left side is the same as that in shaded blue, since Nov
2012. Essentially I have moved the market back in time by 118
weeks, to look for price pattern similarities.
There are indeed many similarities in the market's chart pattern
between then and now with a few of them outlined below.
Just Mere Coincidences?
Shown by the chart above, the market in 2011 printed three price
tops, the first in Feb 2011, the second in May 2011, and the final
in July 2011. Very similarly in 2013, again the market has
now made three similar price peaks shown on the left side of the
chart by the dashed vertical lines.
The similarities don't end there, though, as shown in the table
below. Leading up to summer 2011 price peaks, the market rose 29%
from its lows in August 2010 (NYSEARCA:IVV). Since November
2012, the market gained a similar 30% to its final peak.
Finally, also shown by the analysis above, it has been 44 weeks
since the market's November 2012 price lows. Leading up to
the 2011 top in early July, the market rose an eerily similar 45
weeks. Likewise the other peaks occurring in 2011 were 25 and
36 weeks long. The 2013 rally peaked in May, 27 weeks after
the Nov 2012 lows, and again in August, 37 weeks later. May's
peak occurred only 2 weeks later than the corresponding 2011
initial price peak and August's peak was only 1 week later.
These "coincidences" are also highlighted in the table above.
Capitalizing on Today's Similarities
History may not always repeat but it certainly can rhyme and
that's why I am watching this chart closely to help us
position for the stock market's next potential moves.
We have already provided subscribers with the key
levels to help us identify if the historical similarities
between this market and previous ones will continue or not. And we
have already capitalized on the increasing risks associated
with this year's debt deadline through our VIX (NYSEARCA:VIXY)
October ETF Profit Strategy Newsletter
(published on 9/20) we wrote:
"The S&P 500 has been making new highs, yet the VIX
(CHICAGOOPTIONS:^VIX) hasn't bottomed. This is a rather large
discrepancy and the previous times stocks have made new highs
without the VIX hitting new all-time lows, it warned of a short
term market top. We think hedging volatility still makes
sense and we're buying the DEC 2013 call options
(VIX131218C00011000) at $540."
Our VIX position is already up 50% (NYSEARCA:TVIX) over the
past two weeks alone and further gains could be ahead if
history repeats itself.
So far, the market is tracing out an eerily similar pattern to
2011, which makes the potential certainly there for another major
market selloff, just like 2011.
If the market is to continue its 2011 ways, then the selloff is
likely just beginning.
Profit Strategy Newsletter
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