Many leading stocks are forming third and fourth stage bases and look very similar to the leaders of the 2006/2007 rally before they broke down. For instance, look at the similarity between these leaders. DRYS from 06/07 and now TSTC and DRWI from our most recent rally. Just like DRYS, both TSTC and DRWI appear to forming the right side of a fourth base which according to WON has a very high probabilty of failure. The charts of the stocks mentioned are shown below:
The markets then as they are now were oversold with the T2108 bouncing from sub-25 levels after rallying for over a year or so from the August 2006 bottom. Similar the markets have been rallying for almost a year now from the March 2009 bottom. If the markets only manage a weak bounce like they did back in November 2007 then we could see leading stocks like TSTC and others take nose dives pretty much like DRYS eventually did as show below by the yellow lines. These are the setups I will be looking for under the second scenario I will speak about in my upcoming post.