Throughout history, similar events have occurred, creating a cyclical nature that can sometimes appear as though history is repeating itself. However, it's important to note that no two historical moments are identical, and as time passes, memories of past events can become hazy and appear similar to those of the present.
Examples of similar events throughout history include Napoleon and Hitler's invasions of Russia during the Patriotic War in 1812 and 1941, respectively, as well as the Great Depression of 1929-1933 and the Great Recession of 2007-2009. Famous ship sinkings, such as Vasa or Wasa, Tek Sing, and the RMS Titanic, also showcase this cyclical pattern.
Currently, traders are evaluating earnings reports, reviewing the mixed inflation data, and monitoring the debt-ceiling talks, causing the SPX to remain in a tight trading range. This range has been between 4,048-4,049 (Apr and May 2023 lows) and 4,186.92 (5/1/23 high) for the past six weeks.
There are similarities between the 2/2/23 to 3/13/23 correction (-386.58 or -9.21%) and the 5/2/23-present scenario from a technical perspective. However, the length and magnitude of both rallies are not identical, but they share a similar scope and scale.
Technical indicators also confirm similar conditions, such as declining volume and the SPX advance minus decline line peaking during early Feb 2023 and soon breaking down two weeks later. The current market breadth nears a critical test of support two weeks into the decline near the Apr/May 2023 lows. The MACD price momentum indicator shows a lower low ahead of the respective SPX price corrections, and the RSI overbought oversold indicator also recorded uptrend line breakdowns into the SPX price corrections.
While the stock market (SPX) may be vulnerable to a correction like the 9.21% correction from 2/2/23-3/13/23, the final verdict may depend on SPX price confirmation. To confirm the 5/1/23 top, SPX must breach the 50-day ma (4,059) and also breakdown below the Apr/May 2023 lows (4,048-4,049) and the 38.2% retracement (4,042) from Mar-May 2023 rally.
Interestingly, the Apr-May 2023 trading range resembles a short-term head and shoulders top pattern. The left and right shoulders reside at 4,169.48 (4/18/23 high) and 4,154.28 (5/10/23 high). The head is 4,186.92 (5/1/23 high), and the neckline support is 4,048-4,049 (May/Apr 2023 lows). If SPX breaks down below 4,048, it could result in a downside projection of 3,909.64 (-6.62%) and below this to the Dec 2022 uptrend at 3,843 (-8.21%), and a retest of the 3/13/23 reaction low/double bottom at 3,808.86 or -9.03%).
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