Here's Why I Think The Dow Will Plummet to 12000! (YM)
Hi friends! Welcome to this update analysis on the Dow Jones Industrial Average, via the DJI (YM) Futures Contract. In this analysis, we are going to assess the incredible similarities, between the present day technicals, and the patterns that were created at the beginning of the 2008 financial crisis.
To begin, I would like to draw your attention to the left side of the chart. You can see that in late 2007, the market had a strong rally into a big head and shoulders pattern (in red.) As the head and shoulders pattern developed, price actually entered the top of a downtrend channel (in blue.) Then, we can see that there was a death cross (which is when the 50 MA (in orange) crosses below the 200 MA (in purple).) Looking at the neckline of the 2007 head and shoulders pattern, we can see that it has a positive slope. From there, the head and shoulders pattern produced a powerful breakdown below the neckline support (rising red trendline.) That breakdown produced a powerful fall that sent the market to the bottom of the blue parallel channel. When the market reached the bottom of that channel, a sharp rally sent price up toward the dashed center line of the downtrend channel.
Fast forward to the present day market, and we can see an incredibly similar sequence of events. The market produced a strong rally into a head and shoulders pattern. Then price entered the top of a new downtrend channel (in blue on the right) which we are currently trading in. Speaking of the current downtrend channel, I am very confident that it is in fact a downtrend channel. I'm sure some people may disagree, but the top trendline has extremely clear reactions, and is perfectly parallel to the pivot lows. Also, the midline of the channel has clearly been reactive with the market, which confirms to me that we are in a new downtrend channel, just as we were in early 2008.
Continuing on with the present day similarities, we can see that a death cross has also happened in the right shoulder of the head and shoulders pattern. The neckline has a positive slope, and when it broke down, we had a powerful fall to where? The bottom of the downtrend channel. Then, exactly like January of 2008, we rallied hard off of the bottom of the downtrend channel, and we are now approaching the midline of this downtrend channel.
That is UNDENIABLY identical to the beginning of the financial crisis. If we look back to 2008, we can see that after price moved away from where we are in the current cycle (We Are Here,) we actually had a rally up to the top of the downtrend channel. Price temporarily broke out above it, but only to fail at the 200 MA and the neckline of the head and shoulders pattern. I think the same will likely be true for the present day market, assuming that these similarities continue. It makes sense for us to eventually rally back toward the most powerful overhead resistance, to test it.
Now, these similarities won't last forever. At some point, this fractal repetition will dissolve. However, until that happens, we can assume that this pattern will continue. If it does, we may see a powerful rally in the coming months, that sends the Dow back up toward 25000. However, impenetrable resistance would likely be found at neckline of the head and shoulders pattern, the top of the downtrend channel, or the 200 MA.
With that said, from the high of 2007, to the low of 2009, the Dow fell an incredible 54.66%. A similar fall today, would eventually send the Dow to 12000. Judging by how long it took for that to happen during the financial crisis, I think we could see the Dow at 12000, within the next 18 months. Interestingly, that level lines up perfectly with the right shoulder of the head and shoulders formation that was created during the great recession.
Don't forget — this market is completely artificial, and inflated by unprecedented quantitative easing and record interest rate suppression by the Fed. We are in a bubble that was created by them, and most interestingly, the technicals are projecting a return to levels not seen since the financial crisis. What they did was the opposite of capitalism. They rescued institutions that were deemed to big to fail. They stimulated the economy way beyond reason. Why didn't they slow down when the market had reached the highs of 2007? That would have actually made sense. Instead the Fed pumped the market will trillions of dollars clear into 2015, all while suppressing rates at zero for a record amount of time. This time, I think the market will do what it should have done in 2008. Eventually, we WILL fall to 12000 and that will only be the beginning.
I'm the master of the charts, the professor, the legend, the king, and I go by the name of Magic! Au revoir.
***This information is not a recommendation to buy or sell. It is to be used for educational purposes only.***
-JD-
To begin, I would like to draw your attention to the left side of the chart. You can see that in late 2007, the market had a strong rally into a big head and shoulders pattern (in red.) As the head and shoulders pattern developed, price actually entered the top of a downtrend channel (in blue.) Then, we can see that there was a death cross (which is when the 50 MA (in orange) crosses below the 200 MA (in purple).) Looking at the neckline of the 2007 head and shoulders pattern, we can see that it has a positive slope. From there, the head and shoulders pattern produced a powerful breakdown below the neckline support (rising red trendline.) That breakdown produced a powerful fall that sent the market to the bottom of the blue parallel channel. When the market reached the bottom of that channel, a sharp rally sent price up toward the dashed center line of the downtrend channel.
Fast forward to the present day market, and we can see an incredibly similar sequence of events. The market produced a strong rally into a head and shoulders pattern. Then price entered the top of a new downtrend channel (in blue on the right) which we are currently trading in. Speaking of the current downtrend channel, I am very confident that it is in fact a downtrend channel. I'm sure some people may disagree, but the top trendline has extremely clear reactions, and is perfectly parallel to the pivot lows. Also, the midline of the channel has clearly been reactive with the market, which confirms to me that we are in a new downtrend channel, just as we were in early 2008.
Continuing on with the present day similarities, we can see that a death cross has also happened in the right shoulder of the head and shoulders pattern. The neckline has a positive slope, and when it broke down, we had a powerful fall to where? The bottom of the downtrend channel. Then, exactly like January of 2008, we rallied hard off of the bottom of the downtrend channel, and we are now approaching the midline of this downtrend channel.
That is UNDENIABLY identical to the beginning of the financial crisis. If we look back to 2008, we can see that after price moved away from where we are in the current cycle (We Are Here,) we actually had a rally up to the top of the downtrend channel. Price temporarily broke out above it, but only to fail at the 200 MA and the neckline of the head and shoulders pattern. I think the same will likely be true for the present day market, assuming that these similarities continue. It makes sense for us to eventually rally back toward the most powerful overhead resistance, to test it.
Now, these similarities won't last forever. At some point, this fractal repetition will dissolve. However, until that happens, we can assume that this pattern will continue. If it does, we may see a powerful rally in the coming months, that sends the Dow back up toward 25000. However, impenetrable resistance would likely be found at neckline of the head and shoulders pattern, the top of the downtrend channel, or the 200 MA.
With that said, from the high of 2007, to the low of 2009, the Dow fell an incredible 54.66%. A similar fall today, would eventually send the Dow to 12000. Judging by how long it took for that to happen during the financial crisis, I think we could see the Dow at 12000, within the next 18 months. Interestingly, that level lines up perfectly with the right shoulder of the head and shoulders formation that was created during the great recession.
Don't forget — this market is completely artificial, and inflated by unprecedented quantitative easing and record interest rate suppression by the Fed. We are in a bubble that was created by them, and most interestingly, the technicals are projecting a return to levels not seen since the financial crisis. What they did was the opposite of capitalism. They rescued institutions that were deemed to big to fail. They stimulated the economy way beyond reason. Why didn't they slow down when the market had reached the highs of 2007? That would have actually made sense. Instead the Fed pumped the market will trillions of dollars clear into 2015, all while suppressing rates at zero for a record amount of time. This time, I think the market will do what it should have done in 2008. Eventually, we WILL fall to 12000 and that will only be the beginning.
I'm the master of the charts, the professor, the legend, the king, and I go by the name of Magic! Au revoir.
***This information is not a recommendation to buy or sell. It is to be used for educational purposes only.***
-JD-