The Behavioral Analysis of Markets Model was built after studying the similarities of the pre/ and post 1929 stock market crash price-action as well as the pre and post 1987 stock market crash price-action. And after multiple years, and multiple dead-ends, I finally noticed the exact same pattern of human emotion had unfolded during both of those periods– as well as a common topping count (waves of price-action) also tied to human emotion.
And while many analyst talk in terms of optimism and pessimism driving price action into highs and lows, I found that description to be deceiving for one simple reason. All bull and bear legs (at any degree I’ve studied) terminate (form TOPS or BOTTOMS) on a combination of factors. For example, a TOP is formed due to a combination of optimism (actual net new purchases of shares) as well as short-covering of shares. So in this example, the net new purchases can be attributed to “optimism” but the fund managers and traders that either capitulate or forcibly cover their previously shorted shares are not optimistic at all. Their short-covering is strictly a function of their own capitulation or the forced margin call (broker or risk desk).
But more importantly, I discovered what I later came to describe as “retest” levels. Behavioral Analysis retest levels are completely different than the “retest” levels described and identified through using Technical Analysis. Retest levels derived through the study of Technical Analysis are typically created on price breakouts or breakdowns and they’re obvious to anyone willing to look at a price chart.
Behavioral Analysis “retest” levels (the ones that I discovered, and the cornerstone of my price target work) are completely hidden to the naked eye when studying price charts and were only revealed to me when I took a reverse engineering approach to dissecting the 1929 and 1987 crashes. In other words, I looked at the final price destination the crashes reached and then worked my way back in time looking for any odd activity that might have occurred at those same price levels during the past weeks, months, and years of price-action.
…Which brings us to the reason behind today’s post….
Today’s price-action in the DJIA once again shows a completed BAM TOPPING count, and more importantly, a similar (albeit smaller) version of the price fractals I discovered back in 1929 and 1987. So assuming the DJIA tracks the historic price-action I’ve used to identify multiple mini-crashes, we should see a violent attack of the 15970 level in the Dow Jones Industrial Average during the 7/22–8/12 window (adjusted on 7/26) with the most likely Flash-Crash or mini crash occurring during the 7/28-8/8 period. (adjusted on 7/26)
The Behavioral Analysis of Markets Model long term forecast is predicting a July 2016 TOP in this area followed by a massive bear market decline carrying price back below the 2009 low. We remain bullish Natural Gas, but not much more at this point…
*Disclosure: I am long SPY PUTS at various strike prices and various expiration dates.