Are We Reliving the 1982 Scenario?

Could history be repeating itself directly?  Might there be an exact roadmap to follow as it relates to the current stock market trajectory?  If only it were so easy, but I did want to highlight some eerie similarities in the charts you might want to as it relates to the end of the 1982 Bear Market in what was called the "Melt-Up" action.  Let's take a look and see if we might be reliving the "1982 Melt-Up Scenario".

First, let's take a look at our current market structure as of May 4th, 2009:

 

 

Taking a quick look, we see a negative volume divergence accompanying a negative momentum divergence (shown in the 3/10 Oscillator and in other momentum oscillators).  Divergences are non-confirmations of higher prices and hint that odds favor a reversal (or at least a retracement) rather than immediate continuation of the rising price action.

A geometric 'arc' has also formed, which hints at a gentle transfer between buyers and sellers (supply and demand) - also a reversal/retracement signal.

 Next, let's look at an eerily similar pattern that formed as we hit the absolute lows of the 1982 Bear Market:

 

We can apply the same analysis - rounded arc, negative volume and momentum divergences.  In the case of September 1982, we did see a much larger volume and momentum spike than we're seeing now.  Price had broken down out of a rising trendline and beneath the 20 day exponential moving average (all charts are showing the 20 and 50 exponential average as well as the 200 day simple moving average).

Speaking in terms of visual charting or technical analysis, virtually any market forecast would have returned a bearish implication from the negative divergences combined with the trendline and moving average break, and the persistent downward trend in prices.

But what happened just after I captured this chart? 

Finally, here is the resolution of the pattern and what happened afterwards.

 

Much to the surprise to both technical and fundamental analysts, investors, and traders, price completely  shrugged-off the negative technical and fundamental analyses and rallied quite sharply - most likely in response to the persistent negativity, as funds who were short were forced to cover and equity funds who were in cash rushed to chase alpha buy putting cash to work, not wanting to 'miss the boat.'

Price continued higher with nary a meaningful retracement at all (finding support each time at the rising 20 day EMA) despite further weakness in the momentum oscillator and in volume.  

If I extended the chart further to the right, you would see price continue its steady trek higher, rising persistently into August 1983 before any meaningful pullback occurred.  We often refer to this period as the "Market Melt-Up" (as opposed to a melt-down) or as the "Creeping/Oozing Trend Up" that continued to defy the bears (sellers).

We'll need to do more analysis to draw further parallels, so one might do well to turn back your charts to 1982 and see if the current S&P 500 continues to behave in the manner it did almost 30 years ago.  It might be an eerie coincidence, but there may also be something deeper of value to consider in the price structure parallels of then and now.