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Stock Market Forecast- How Low Can the Dow Go? - Yorba TV Show

Stock-Markets / Financial Markets Jul 03, 2008 - 12:03 PM GMT

By: Anthony_Cherniawski

Stock-Markets Best Financial Markets Analysis ArticleThe theme of today's show is, “How low can the Dow go?”  I have attached a chart of the DJIA that is looking more probable than when I first made this chart several months ago.  When this pattern first became evident, I set it aside as a novelty rather than take it seriously.  Today, I am looking at a much higher probability of this chart being fulfilled . 


First, I want to point out a double head and shoulders pattern.  I don't know how rare they are, but I have simply never seen anything like it before.  I color coded them to make them more recognizable.  The first H&S pattern is the green one.  This became apparent last November when the decline came very near the August low, forming a potential neckline and a target near 10,800.  This suggested that the DJIA may have gone to 10800 in  either January or March had it not been rescued by the FED.  Once that pent-up energy was turned around, it had another job…to go back to the underside of its trendline, which it had also violated in early January.  A backtest and failure at a trendline is known as the kiss of death.  Now the DJIA has a second chance at 10800 and may yet succeed in the next week or so. 

Last week, the DJIA violated a second potential neckline.  This has a probable target of 9300.   My best guess is that the higher trendline will provide support for this decline and the lower trendline may provide support for the next leg of the bear market.  In the meantime, red neckline may provide the resistance for the rally before the next plunge. 

Last week I mentioned that I had found a smaller head and shoulders pattern in the Russell 2000 Smallcap Index.  Yesterday its target was fulfilled.   Let's brush the dust off a larger head and shoulders pattern in the Russell 2000 index.  This is a weekly chart that suggests the Russell 2000 may have a target of 624.  We'll also find out next week whether this takes place or not.   The fascinating thing is that the Russell may also be developing a second larger head and shoulders pattern. 

What is the cause of the markets accelerating their decline?  It is the weakened dollar and the fact that the ECB   is willing to fight inflation with higher interest rates while the Federal Reserve is only talking about it.  This is causing big money to flee investments  denominated in US Dollars.  For Example, Fortis announced that it had withdrawn 8 billion Euros from the US.  That is the rough equivalent of $13 billion in investments cashed out of the US.  That may be a bit of the pot calling the kettle black, since the Eurozone has its problems, too.  But the dollar is bearing the brunt of investors scorn.  Could we see a reversal soon?  Right now the point of interest in the Dollar chart is support near 71.  If the dollar can hold there it may be able to finally put in a low.

Finally, can a pattern fail?  The answer is a resounding yes!  Patterns often have a high degree of reliability, but there are those times when they fail.  The energy ETF is one such pattern that has not lived up to its promise.  It now appears about to break the lower boundary of its triangle rather than the upper boundary.  Not a good sign.    

The other disappointment so far is WTIC.  A sideways consolidation is considered the same as a triangle…a continuation pattern.  Normally, one would expect to see an explosive move out of a triangle or a sideways consolidation.  Not so in oil.  Instead of rallying  briskly to 150 or 160, it seems to be waiting for something.  Neither of these patterns appear to be trustworthy, IMO.

Have a happy holiday!

See you at 3:00 CST.

Which will it be? Stay tuned! on www.yorba.tv every Thursday at 4:00 pm EDT . You can find the archives of my latest programs by clicking here .

Please make an appointment to discuss our investment strategies by calling Claire or Tony at (517) 699-1554, ext 10 or 11. Or e-mail us at tpi@thepracticalinvestor.com .

Anthony M. Cherniawski,
President and CIO
http://www.thepracticalinvestor.com

As a State Registered Investment Advisor, The Practical Investor (TPI) manages private client investment portfolios using a proprietary investment strategy created by Chief Investment Officer Tony Cherniawski. Throughout 2000-01, when many investors felt the pain of double digit market losses, TPI successfully navigated the choppy investment waters, creating a profit for our private investment clients. With a focus on preserving assets and capitalizing on opportunities, TPI clients benefited greatly from the TPI strategies, allowing them to stay on track with their life goals

Disclaimer: The content in this article is written for educational and informational purposes only.  There is no offer or recommendation to buy or sell any security and no information contained here should be interpreted or construed as investment advice. Do you own due diligence as the information in this article is the opinion of Anthony M. Cherniawski and subject to change without notice.

Anthony M. Cherniawski Archive

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