Wednesday, July 15, 2009

DOW Bears or Bulls?

Daryl Guppy wrote an analysis on the DOW Chart on July 14, 2009, comparing it with China's Shanghai Composite. A case of Bamboo Shoot (China) vs Green Shoot (USA) now turned yellow? I think the term “Tow Gay” is better (bean sprout)! Ha ha ha!

Key points to note on Dow Chart:

1. A rounding top pattern developing in DOW.

2. The rounding top pattern is a reliable indicator of a significant trend change. This rounding top pattern is shaped like an umbrella.

3. The upper edge of the pattern is located near 8900 and the support level is near 7800.

4. The distance between the support and the peak is measured. This value is projected downwards below the support level to give a potential downside target near 6800.

5. The pattern is confirmed in two steps:

  • The first pattern confirmation develops when the DOW is not able to move above the value of the curved downtrend line. This is currently near 8300.

  • The second pattern confirmation comes when the DOW closes below the support level at 7800.

  • When these conditions develop, there is a high probability DOW will continue to fall and reach the target low near 6800.

6. DOW also has developed a small head and shoulder chart pattern. Currently this chart pattern is not completely developed. Estimated downside target projection is near 7300.

7. The rounding top and the potential for the head and shoulder pattern development both confirm the high probability of a continuation of the downtrend in DOW.

8. The suggested target for the market fall is between 6800 and 7300.

9. Too many Western analysts are blinkered by the belief that economic recovery is entirely dependent upon the US and they ignore the market reality shown by the market index activity.

I like item 9. Stock markets worldwide can still crash even with economic recovery or end of recession. We are still in a multi-year bear market. Remember the Structure of Bear Markets?

Be prepared for the next stock market crash! When will it come?

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