Cracks In The Hull – Similar Tops Forming On SPX

Yesterday was the first day in nearly 2 months that the markets declined more than 1%. The 37-day streak that just came to an end yesterday was the longest since May 2007 – right before the S&P 500 dropped more than 150 points in just 2 months.

Each Streak Is Followed With Pain

Going back the last 10 years, each consecutive stream of 35-40 days without a 1% decline is swiftly followed by a 1-2 month sell-off driving the indexes down more than 7% on average.

Similarities With April Top Showing

Discounting the fact that this current run is nearly twice a long as the Feb-Apr run last year (which should only make you even more risk adverse), the similarities between the tops are very bold. Notice in April of last year how the 1st day with a 1% decline sticks out like a sore thumb on the chart. This was followed by a week of sideways trading and then 2 months of major selling.

Now we are showing the same signs of weakness. Although, in this case, a strong level of support is much closer than it was in May-Jun last year. Keep your stops tight and start buying cheap out of the money puts to hedge.