Historical Look At How The Last Bull Market Ended (H&S Pattern), Moved Against Negative Credit News For Years

source: bigcharts.com
I found an old chart on my computer and think it's useful because it shows how the last 5 year bull market in equities ended. I compared the weekly S&P 500, Dow and Nasdaq charts that showed the head and shoulders top and breakdown in 2007, as well as the first trend/floor support test. I'm not sure if this was a linear or log chart. I created this on 1/31/2008 at BigCharts.com about a month and a half before Bear Stearns was bailed out by the Fed and sold to JP Morgan. Update: Using the linear chart, which I think this was, I looked back at each chart specifically and at this time the S&P broke through the trend line from 2002, the Dow held it, and the Nasdaq pierced through the trend line but rallied above it (slightly). I can't tell if the Dow's RSI made a new four year low, but look how the trend in volume was increasing during sell offs, which was flashing a warning sign.

If you weren't watching housing stocks diverge with the S&P since 2006, or didn't notice that MBS prices via their credit default swap spreads (MBS insurance rates) were crashing, which made hedge funds like Paulson & Co. billions of dollars (see more ABX Index charts from 2007). Actually, some strategic bond funds and ETFs offered to retirees at Morgan Keegan were filled with CDOs backed by toxic subprime ABS that you could have charted out against the S&P as an ABX alternative! I found a chart of the performance from a Tennessee court case.

Or, if you didn't notice when the largest subprime mortgage lender, New Century Financial, went bankrupt on April 2, 2007... When that Bear Stearns credit hedge fund imploded on July 18, 2007, that was the major catalyst that proved systemic risk officially spread to the so called "smart" leveraged institutional money. Then on August 24, 2007, Bank of America bailed out Countrywide (injected $2 billion), the stock market peaked in October, the collateral call fest began, and Bear Stearns was officially bailed out by the Fed. In this case equities and mortgage credit were diverging for years, but the severity of news flows was also a decent trend to watch against economic data and the S&P.