The top chart is the 1977 market. The bottom chart is the 2011 market so far. History does not provide carbon copies and the two charts do not look alike at first glance. However, upon closer inspection startling similarities appear. I believe that historical patterns can provide templates for current markets if you look within. To me it is the same as when a zoologist looks at a fossil and determines that it is a sort of flamingo based on the structure of the ankle bone. Of course this is subjective and prone to error and we need to be careful not to stamp our emotional desires onto the charts.
The first thing that is worth pointing out on the chart is the two sets of 3 wave patterns. The first set is the brown lines and the second set is the blue lines. Now these charts are on a different scale but the pattern matches quite nicely. A key matching point is that the top of the blue pattern is higher than the top of the brown pattern in both circumstances. So while back to back 3/3 patterns are not unusual, a back to back pattern where the second is higher than the first is unusual at least as far as major market indexes go.
The second pattern that is quite interesting is the purple slide. Both patterns end with a distinctive curvature, like a playground slide. Both patterns also demonstrate a distinctive hump (purple circles) at the end of the slide. If one were to squeeze the 2011 chart horizontally so that the slopes matched then the pattern would be much more obvious.
The first anomaly is marked with a purple X. The 1977 market did not have a midpoint spike. I believe that this spike in 2011 was a "would be bull market" that was truncated by news events. This is the first tricky part I believe to the interpretation of the charts. This bull fake out caused the 2011 market to stutter. As a result it did not slide down as much as the 1977 market. If you compare the positive of the purple triangles and blue circles on the two charts you'll see that the 1977 market retreated much more deeply from a relative position. Don't be fooled by the earlier correction on the 1977 chart. It is a red herring.
Next we see the two charts maintain their remarkable similarity with a steep rally out of the bottom. While both rallies demonstrate a V shaped retracement, the 1977 market demonstrates another anomaly in that it paused earlier on for a sideways consolidation before resuming the rally. I believe that this consolidation did occur in 2011 but at the bottom of the rally.
When I first noticed the correlation between these charts I believed that the 2011 market would end without making a new high, just like the 1977 market. Now I believe however that we will see a higher high. The key is the location of the purple triangles relative to the blue circles. The 2011 market is an expanding market by nature of the truncated bull spike. The height of this rally should be higher than the previous top since it begins from a higher initial rally point than the previous top.
How much further the rally goes is of course the salient question at this point. My caution is not to call the rally over prematurely. It is entirely possible that what I've labeled as the V shaped retracement is in actuality a sideways consolidation at a higher point. Such a condition would point to a significantly higher top. If however the V shape in 2011 is respective of the V shape in 1977 then I think we will eek out a marginal high over the prior top.
A further drop off from this point without first making a new top would send my opinion quickly over to the other side. The blue circle is a definite line in the sand in regards to seeing any new future highs.
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