In February and March 2003 public and market fear was as palpable as it is today. The "Tech Wreck", the World Trade Center collapse, and the specter of the Iraq war loomed and weighed down sentiment. Stock market indexes were once again nearing the crash lows of 2002, gold had risen 50% since the 2001 lows, the US dollar index had fallen 18% since 2000, and interest rates were falling. Deflation was expected to return momentarily, and many feared that terrorist attacks would increase when the war began.
A very simple market measure of sentiment I have used since 1996 began to show reduced bearishness after the December 2002 reaction high. That sentiment gage I call the 2CS Sentimeter of Bearish Sentiment, 2CS for short. It is the five day cumulative total of daily CBOE P/C times the daily CBOE VXO. (VXO is used since the data base is longer than with new VIX.) Five days seemed long enough to smooth out single outlier days but short enough to be timely. The red numerals on the first chart are the extreme 2CS readings near the extreme lows and high swings of SPX weekly price bars.
Needless to say, current anecdotal sentiment and the news is ghastly. The price pattern of SPX in 2008 and in 2009 to date resembles the 2002-2003 price pattern with two sharp crashes followed by a multi-month rally and then another fall toward the previous crash lows. 2CS market sentiment and internet market chat site comments are even more bearishly positioned now than in early March 2003 as shown in the second chart for 2CS. Once again gold is rising, interest rates are very low, and deflation and depression are two words heard everywhere.
Chart patterns are, of course, only one small part of technical analysis of prices, but the similarities are striking and should cause us to be on the outlook for other signs of a market bottom in the near future.
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