Has the DJIA been saying anything about the recent ‘recovery’ in the last couple weeks market activity?
Description of the technical chart above: Here we see the DJIA rising and correcting from right to left. This is a weekly chart starting in 1995 and is up to date for Friday, 19 August 2011 (extreme left).
Sometimes market behavior is described as following fractal patterns. Where there are small patterns within larger similar shaped patterns.
Rising markets can be seen occassionally following a 1,2,3,4,5 rise then going into an A,B,C correction; 1 up, 2 down, 3 up, 4 down, 5 up to complete the move. In the chart above we see the DJIA appears to have finished a very long bull sequence that is seen in the large numerals 3, 4 and 5.
If you look closely at the first major corrective downleg, between A and B you’ll see a smaller period count, labeled (1), (2), (3), (4) and (5). Note that (5) terminates with the longer term B peak.
The couple year period between the corrective legs A and B have been the anemic recovery we’re experiencing.
In order to complete the A-B-C pattern that may be forming, ‘B down’ will need to reach C to end the corection (recession, depression-how ever it unfolds). The route down might employ a medium term (year or two) 1,2,3,4,5 pattern within the leg down. Thus B to C down might resemble (rhyme with) A to B up, somewhat, except that it declines.
Further note- there is a very heavy S H S set in each of the major market rises. These letters stand for Head & Shoulders. The is a right shoulder, a head, and what looks like the side of a left shoulder, now developing. If the left shoulder reaches the ‘neckline’, the horizonal line running across the base of the H&S formation (with orange arrow pointing at about 7000) , there is a possibility that an ensueing decline will extend below the neckline as far down as it does above the neckline. This means the Dow could theoretically decline to zero! The brown line hanging from the neckline exends as far down as it would extend above, to reach to top of the head in the pattern. The lower red arrow points to zero on the scale.
Remember, the DJIA was only at about 3,500 16 years ago.
If we are going into a correction that seeks to retrace the movement since 1995ish, and if the market corrrected about 50% of the point rise since 1995, then the bottom would be around 6800-7000 as shown in the chart above. Note: The markets have a tendency to retrace the prevailing market trend and correcting either, 23%, 38%, 50% or 62%. On the other hand, if 7000 is broken then there is a chance that the DJIA could go to nearly zero.
If the DJIA reaches 7000 the world economy will simply not look good. If the DJIA moves much lower, its because the decline is being fueled by frightening events and news.