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Crash Playbook Continues To Play Out image

Immediately after the August 24 mini crash, I opined that the bottoming process could begin as early as that very week, which it did. I also wrote extensively and did a fair amount of media discussions on the topic. So far, the major indices are nicely following that scenario which had stocks rallying off the crash low into a September peak and then revisiting that low by the middle of October.


Paul Schatz of Heritage Capital, LLC is filling in for Dave M. this morning. We are pleased to be able to offer Paul's thoughts on the state of the market and hope that you enjoy his views.


Remember the comparisons I offered from 1987, 1989, 1994, 1997, 1998, 2010 and 2011? You can read the full article HERE. I was also excited to share my findings on CNBC’s Fast Money.

At this point, I am totally eliminating 1994, 1997 and 2010 as the correlation (how closely the patterns resemble the current one) has broken down. I am also partially eliminating 1987 and 1989 as the rally from the crash bottom to the ensuing peak was a mere two and five days long as you can see below.


We are now left with 1998 and 2011 as the most likely comparable periods to today. Not surprising, they are very similar as I review the price action, number of days in the rally period and days separating the mini crash low from the final low.

Below is 1998 where we see the late August crash, followed by a 17 day rally and 28 days between the lows before stocks embarked on a powerful rally to fresh all-time highs.

2011 is next and similar. 17 days of rally with 40 days between lows.

Finally, 2015 is below. First, you can see how the rally period allowed me to partially or mostly eliminate 1987 and 1989 although 1987 still looks similar to 1998, 2011 and 2015 if you look at the days between lows.

While the higher highs in the rally from the August mini crash looks more like 1998 than 2011, 1998 also rallied further than what we saw last month. I would offer that a synthesis of 1998 and 2011 is probably the best fit.

Paul Schatz

Paul Schatz is President and Chief Investment Officer of Heritage Capital, LLC, in Woodbridge, CT. and a Managing Partner at Numetrix Capital, an investment research firm focused on multi-manager, multi-strategy portfolio solutions.

This Morning's Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

Major Foreign Markets:
    Japan: +1.00%
    Hong Kong: -0.10%
    Shanghai: Closed
    London: -0.13%
    Germany: +0.09%
    France: +0.05%
    Italy: -0.09%
    Spain: +0.24%

Crude Oil Futures: -$0.16 to $46.10

Gold: +$1.40 at $1139.00

Dollar: higher against the yen, lower vs. euro and pound

10-Year Bond Yield: Currently trading at 2.040%

Stock Indices in U.S. (relative to fair value):
    S&P 500: -6.90
    Dow Jones Industrial Average: -33
    NASDAQ Composite: -22.30

Thought For The Day:

Each of us has a fire in our hearts for something. It's our goal in life to find it & keep it lit. -Mary Lou Retton

Current Market Drivers

We strive to identify the driving forces behind the market action on a daily basis. The thinking is that if we can both identify and understand why stocks are doing what they are doing on a short-term basis; we are not likely to be surprised/blind-sided by a big move. Listed below are what we believe to be the driving forces of the current market (Listed in order of importance).

      1. The State of China's/Global Economy
      2. The State of Stock Market Correction
      3. The State of Fed/Global Central Bank Policy
      4. The State of the U.S. Economy

The State of the Trend

We believe it is important to analyze the market using multiple time-frames. We define short-term as 3 days to 3 weeks, intermediate-term as 3 weeks to 6 months, and long-term as 6 months or more. Below are our current ratings of the three primary trends:

Short-Term Trend: Moderately Positive
(Chart below is S&P 500 daily over past 1 month)

Intermediate-Term Trend: Moderately Negative
(Chart below is S&P 500 daily over past 6 months)

Long-Term Trend: Low Neutral
(Chart below is S&P 500 daily over past 2 years)

Key Technical Areas:

Traders as well as computerized algorithms are generally keenly aware of the important technical levels on the charts from a short-term basis. Below are the levels we deem important to watch today:

  • Key Near-Term Support Zone(s) for S&P 500: 1867
  • Key Near-Term Resistance Zone(s): 2000

The State of the Tape

Momentum indicators are designed to tell us about the technical health of a trend - I.E. if there is any "oomph" behind the move. Below are a handful of our favorite indicators relating to the market's "mo"...

  • Trend and Breadth Confirmation Indicator (Short-Term): Positive
  • Price Thrust Indicator: Negative
  • Volume Thrust Indicator(NASDAQ): Negative
  • Breadth Thrust Indicator (NASDAQ): Negative
  • Intermediate-Term Bull/Bear Volume Relationship: Negative
  • Technical Health of 100+ Industry Groups: Negative

The Early Warning Indicators

Markets travel in cycles. Thus we must constantly be on the lookout for changes in the direction of the trend. Looking at market sentiment and the overbought/sold conditions can provide "early warning signs" that a trend change may be near.

  • S&P 500 Overbought/Oversold Conditions:
          - Short-Term: Overbought
          - Intermediate-Term: Oversold
  • Market Sentiment: Our primary sentiment model is Positive .

The State of the Market Environment

One of the keys to long-term success in the stock market is stay in tune with the market's "big picture" environment in terms of risk versus reward.

  • Weekly Market Environment Model Reading: Negative

The opinions and forecasts expressed herein are those of Mr. Paul Schatz and may not actually come to pass. Mr. Schatz's opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report is for informational purposes only. No part of the material presented in this report is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program.

Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.

The analysis provided is based on both technical and fundamental research and is provided "as is" without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

Paul Schatz, an advisor representative of CONCERT Wealth Management Inc. (CONCERT), is founder of Heritage Capital LLC, a legal business entity(Heritage). Advisory services are offered through CONCERT Wealth Management, Inc., an SEC registered investment advisor. For a complete description of investment risks, fees and services review the CONCERT firm brochure (ADV Part 2) which is available from your Investment Representative or by contacting Heritage or CONCERT.

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