The Chart That's Forecasted Every Major Move Correctly Since March 2011

Simon Maierhofer
November 4, 2011

In investing, the only thing that counts is profits. Unlike big Wall Street banks (NYSEArca: KBE - News) and financial conglomerates (NYSEArca: XLF - News) we, the small time investor, don't have the Federal Reserve on speed dial to bail us out from bad investment decisions.So when we find an accurate forecasting tool, we do good to follow it closely and milk it for what it's worth. With the help of astute subscribers, I stumbled upon a rather recent historic chart parallel that has literally foreshadowed every major move since March 2011 correctly.Seeing is believing, so take a look at the chart below. The Dashed red circles highlight all the major similarities between the 2007/08 and the 2011 S&P highs and subsequent sell offs.The DifferencesThe main differences between the two patterns are: 1) Timeframe. The 2007/08 topping process took longer and 2) In 2008 the S&P touched the trend line three times before crashing through it, in 2011 the S&P touched it only twice.The SimilaritiesThe similarities outweigh the difference by quite a margin. Both patterns show a head and shoulders top with a clear neckline. In both cases, the selling accelerated once the neckline was broken (see red arrow).                 Following the initial low after the neckline break, stocks consolidated before falling to another low. Both times, stocks bounced from their low to retest the trend line.I know many will argue that hindsight is 20/20 (the standard response of anyone who missed out on this opportunity). But even without hindsight, here's how many have raked in profits by following a few simple pointers. More importantly, we'll find out if this predictable parallel will continue to play out.No Hindsight NeededIt took the March post-Japan earthquake low to provide the second touch point for this trend line, so we didn't get to profit from the trend line in March. But even without the benefit of the trend line, the March 18 ETF Profit Strategy Newsletter stated that: 'We expect new recovery highs later in 2011. The 1,369 - 1,382 range is a strong candidate for a reversal of potentially historic proportions.'This high occurred on May 2, 2011 at S&P 1,371 and was followed by the second test of the trend line with a low on June 16. The June 15 ETF Profit Strategy update referenced the trend line and stated that: 'Technicals and sentiment data suggests that a bottom has either been found or is close. A drop into the 1,259 - 1,245 range would prompt us to close out short positions and leg into long positions' (long positions were closed and replaced with short positions at 1,325).The S&P's next rendezvous with the trend line happened on August 2. The July 28 ETF Profit Strategy update warned that: 'A break below the 200-day SMA and the trend line may trigger panic selling.' The S&P fell 20 the next five trading days.Based on various technical studies and the 2008 script (see August 14 and 21 updates for details), it was clear that the August 8 low at 1,002 would have to give way to a new low before a rally to retest the trend line.The October 2 update pointed out that: 'The ideal market bottom would see the S&P dip below 1,088 intraday followed by a strong recovery and a close above 1,088.'The target for this rally of course, was a retest of the trend line at 1,270. That retest happened last week and the S&P has peeled away since (the newsletter recommended to go short with a break below 1,270 and has since closed short positions at 1,235).What's Next?Simply based on the 2008 analog, the S&P (SNP: ^GSPC) along with the Dow (DJI: ^DJI), Nasdaq (Nasdaq: ^IXIC) and any other major index may just be chopping around for another week or two before heading south for the winter.Up until now, technicals, sentiment and seasonality have confirmed each of the turns forecasted by the 2008 script (I.e. sell in May and go away, October has a reputation of a bear market killer, sentiment was extremely bearish in October).However, the Presidential election year cycle and bullish October - December seasonality do not support the scripts suggestion of lower prices. Additionally markets like to climb a 'wall of worry' (there's plenty to worry about right now).With a number of indicators in conflict with each other, now is not the time to follow any one pattern or indicator. The markets are in turmoil and may melt up or melt down within a matter of weeks.The ETF Profit Strategy Newsletter tracks a composite of indicators (sentiment, seasonality, technicals, trend lines, historic patterns, Fibonacci levels, etc.) to compose high probability short, mid and long-term forecasts. Updates and corresponding ETF profit strategies are provided at least twice a week.ETFs linked to the S&P 500 include: SPDR S&P 500 ETF , iShares S&P 500 ETF (NYSEArca: IVV - News), Vanguard S&P 500 ETF (NYSEArca: VOO - News), Short S&P 500 ProShares (NYSEArca: SH - News), UltraShort S&P 500 ProShares (NYSEArca: SDS - News), UltraPro S&P 500 ProShares (NYSEArca: SPXU - News), Ultra S&P 500 ProShares, UltraPro Short S&P 500 ProShares (NYSEArca: UPRO - News