Wednesday, November 12, 2008

Recession vs Depression Chart Patterns?

Will US and the Global Economy be in a Recession or Depression?

The stock market can give the clue? How? Look at the Chart patterns!

Below comments were extracted from Daryl Guppy's Article published in CNBC website yesterday:

1. “A recession is an economic slowdown that may last for 6 to 18 months. A depression is an economic pullback that may last from two to four years.”

2. “In a recession, the market will develop strong trending behavior many months prior to the official confirmation of the end of a recession. This recovery provides trend trading opportunities.

In a depression the market will develop a long-term consolidation pattern. This is an investment period that lays the foundations for generational fortunes. Trend-trading opportunities do not develop for several years. This consolidation and accumulation phase concentrates on creating income flow from dividends. The fundamental end of a depression is not recognized until many months after the market has already reacted.

3. The key trigger that separates a recession from a depression is the behavior of the rebound from the pile driver low.

Recession behavior - After the 1987 crash, the rebound quickly developed strong trending behavior. The move above the midway point in the market fall signaled a continuation of the uptrend. See chart. (click on image to zoom out)

Depression behavior is when the market fails to move above the midpoint of the extreme fall area.

On the current Dow chart, the area near 12,000 is the key level to watch. Failure to move above this level suggests a depression scenario may develop.

A sustained move above 12,000 signals a recession. There is one caution in this analysis. The Dow has not yet developed a confirmed pile driver bottom pattern on the weekly chart. The low of this pattern will determine the mid-point resistance level that is used to signal a recession recovery. See chart in DOW/STI Chart for 2009?

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