Intuition Pump

The market is refusing to touch the 200 DMA. It is the second time in a few days that the SPX reverses from just above it. I looked back into history and there was never a time when the market got this close to this moving average without breaking at least a little below it. These reversals from the edge might mean there are a lot of impatient longer term bulls and they are probably going to get burnt before any meaningful move to the upside.

I also looked back until the 80s and tried to find out a similar context for the daily SPX and what a day like yesterday meant for the short term market behavior. I defined the context as a longer correction, followed by a few days rally and then by another attempt to sell off.

Here are some similar instances I found. They do not exactly fit the whole pattern since I looked especially for a day similar to yesterday.

> dec19 1997, aug22 1997, oct5 1990, oct24 1989, mar13 2008, aug10 2007, may17 2011 <

In all these cases the market started falling again over the next few days, sometimes faster, sometimes slower. A bottom was near every time but it happened very close or a little below the recent lows, in our case around 1260 SPX.

The chart below is just one of the examples, August 22, 1997:

I recently found a good name for this method of looking at similar past instances in order to get some guidance for the future: "intuition pump". It was used by Paul Krugman in a speech. Mr. Krugman was talking about something else, namely equilibrium models, but I think the term can be applied to my method as well, since it does the same thing as the models for Mr. Krugman: puts things into perspective.