Could the Markets Be Setting Up For an Autumn Crash?

The market appears to currently be tracing out a pattern that we have seen multiple times. That pattern is:

1) A spring mini-crisis (usually March)

2) A summer rally

3) An autumnal collapse

This pattern played out in 1907, 1929, 1987, 2000 and 2008.

The most recent example we can point to is 2008. In that year, the market experienced a mini-crisis in March with the collapse of Bear Stearns.

However, the Fed stepped in, merging Bear with JP Morgan. The relieved markets rallied into the summer on low volume. But come July, when Fannie Mae and Freddie Mac failed, it became clear that the summer rally would not be exceeding the previous market top.

Then AIG failed, and the markets nosedived, collapsing into an autumnal crash.

Could the markets experience another similar autumnal collapse in 2014? It all hinges on #2 in the list above: the summer rally.

The markets usually stage some kind of summer rally/ dead cat bounce following spring crises. The key issue is the volume and force of the move. If the market rallies hard on heavy volume during the summer, this negates the pattern.

However, if the market rallies on weak volume after a spring crisis, and fails to exceed its previous top, then LOOK OUT.

Here’s the market’s current chart:

This time around, the spring crisis involved political and geopolitical instability in Ukraine. As you can see, the market bounced off of its trendline and is now trending sideways.

Provided we hold this line, we should see a summer rally back up to the 1,900 area on the S&P 500.

However, if we take out the trendline, then the market is in more serious trouble.

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Best Regards

Phoenix Capital Research