Dow Jones 36% correction incoming?

The Dow Jones industrial average has 🛎 “Alarm bells” 🚨 for all to see. Some bad some good.

The above monthly chart prints a new candle 12 days from now. The candle is signalling a breakout from the rising wedge formation. Three probable outcomes are foreseeable:

Worst case: Price action returns to the foot of the rising wedge as before with rising wedge 1. The rising wedge is a bearish formation with price action returning to the start of the formation the majority of the time. This is probable.

Least worst case : Price action finds support after a 6% correction to the upper half of the megaphone structure before continuing uptrend. Most probable outcome. Why? read on..

Somewhere in-between: Price action enters the megaphone pattern for a 23% correction.

A correction is underway regardless. The next three months will be for the brave only, trading at these levels is inherently risky. This is confirmed by the 3-month chart (shown below).

On the 3-month chart a ‘indecision candle’ is printing where neither buyers nor sellers have control of the market. However once the indecision candle is resolved one can expect a powerful and significant move. But which direction?

Looking left…

One chart very few folks will be looking at is the yearly chart (bottom), each candle here represents 1-year of data. The 2020 candle closed as a dragonfly DOJI candle (labeled WOW). This is incredible. It has only happened three times before (purple circles):

1900 - a 40% market correction occurred in the following 3 years.

1942 - This DOJI printed after a 50% market correction. Typically DOJI candles are found at the bottom of corrections, but not always.

1970 - a 40% market correction occurred in the following 4 years to the 35-year EMA (blue line) - see a pattern yet?

2020 - A Dragonfly DOJI candle is printed. A incredible DOJI. If 2021 closes as a green candle it will be the signal of the century. I say that because this DOJI is unlike any other printed in the history of the index. The length of the tail is unmatched.

A 40% correction should occur as before, right? Not necessarily. Previously DOJI candles followed by a correction had Stochastic RSI below 20. This time is different, really. Stochastic RSI >80 suggesting there’s lots of momentum still.

The blue line is the 35-year EMA. Approximately tested once every 34 years. Still 20 years away.

All that matters now is how the next 3-month and yearly candle closes. Will update then should I remember.

WW


3-month chart

1-year chart. Each candle is 1-year of data.

Trade active:

That began sooner than expected. Remember the 6% correction version is the most probable outcome. Look for support around 33k.