subject: Is the DOW headed to 2900 [print this page] Is the DOW headed to 2900 Is the DOW headed to 2900
Is there another market crash in the cards for the stock market? I believe we have to consider that possibility as a very significant topping formation maybe near completion and could bring about big losses to those not prepared and complacent about this possible scenario.
Of all the many traditional price patterns that we find in the financial markets perhaps one of the most interesting ones has to be the head and shoulders pattern and this can be seen in both topping and bottoming chart formations.
Unfortunately for investors this time around it looks like the DOW is getting close to completing a multi-decade topping formation that could have bad intentions. And one thing about this elegant pattern is that it can provide a very accurate way for us to calculate a potential target move which can give us some clues in this case as to how low the markets could go from current levels.
Now again this is a massive pattern that has been forming since the late 90's, so to trulyappreciate it and visually identify this pattern we mustlook at a minimum of atleast 15-20 years of data on a monthly or quarterly chart.Take a look at the quarterly chart above as I explain the basic formation. The topping head and shoulders pattern has two shoulders (two outside peaks Jan 2000 and current highs) and the head in the middle of the shoulders with a higher peak (Oct 2007), finally the two bottom lows (Oct 2002 and Jan 2009) if connected by a trend line can be considered to be the neck line.
Now to calculate the target low we take the distance from the neck line to the high of the head and subtract it from the neck line once price penetrates it from current price levels. A target equal to this measurement once price breaks through the neckline is a typical level that would be expected to be reached in most head and shoulder patterns. Now to be ultra conservative here on this bearish pattern, I'm only going to subtract 38.2% of this measurement and not the common 100% and suggest that we can expect the DOW to reach a minimum low of around 2,900 or a mind-blowing 77% destruction from current levels.
Should this pattern play out in any way close to my chart suggest, can your portfolio survive such a scenario?, are you ready for a multi-year bearish environment?, are you able to make money in both up and down markets?, If not then Iurge you not to be another market victim and to take proper action to position your portfolio to profit regardless of market conditions.
