2001: An S&P Odyssey

I have been writing for almost a month now about an impending correction. Again on Friday, even after an awful decline in the market last week, I still called it a correction.

Over the weekend, however, I realized I'd seen this chart of the S&P before. I searched a bit and found that the last time we had a similar chart pattern was spring of 2001.

Now before you gulp the way I did when I first saw the similarities on the charts below, let me say that many of the indicators I follow do not have the same pattern shape. The Oscillator doesn't look the same, the 30-day moving average of the advance/decline line doesn't look the same. The McClellan Summation Index doesn't look the same.

In addition, if we use percentage terms, the rally from the lows in spring of '01 to the highs was just over 20% on the S&P. The recent rally was in the 10% area. However, the points are about the same: approximately 200 S&P points.

Then there's the time frame. We broke down from the top in February 2001. This time is was January. We made a low in late March and retested it in early April in 2001. this time we made the low in mid-March and retested it in late March.

In 2001, we made the high on May 21. This time (so far) it was May 19.

OK, so big deal, the pattern is similar, the dates are fairly similar but the indicators are not the same. Let me clarify that point. The indicators all rolled over back then, as they are now, but this time we had a lower high in the Oscillator that came on a higher high in the S&P. In 2001, the Oscillator made a higher high right along with the S&P.

In 2001, the McClellan Summation Index did not turn down until June, this time it has turned down already. The 30-day moving average of the a/d line in 2001 peaked along with the S&P; this time it peaked before.

So the difference is not that the indicators aren't rolling over, the difference is that this time they warned us of the market's trouble; back then, they didn't.

Now let's look at a close-up view of the S&P from then. On Friday, I suggested we might see a rally to give us a head-and-shoulders top in the S&P. You can see on the chart below that is exactly what happened in the spring of 2001

I have also been discussing that I believed unless we got a reading in the Investors Intelligence survey of something in the mid- to high 50% area, we hadn't converted that many bears to bulls. Well, it turns out that the 20% rally in 2001 pushed bullishness to only 50%, and that was it. This time we've gotten to 47%. So there goes my theory of needing more than 50%.

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Helene Meisler writes a daily technical analysis column and TheStreet.com Top Stocks. For more information, click here. Meisler trained at several Wall Street firms, including Goldman Sachs and SG Cowen, and has worked with the equity trading department at Cargill. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. She appreciates your feedback; click here to send her an email.