Dow Jones Similarity Chart Shocker!
"If you have trouble imagining a 20% loss in the stock market, you shouldn't be in stocks." ~ John (Jack) Bogle
The Dow Jones is hovering very near the highs of 2010 but hasn't managed to take them out yet although we were pretty nearly managed this on Monday.
Of course a few weeks after those April highs we had the ‘flash crash'.
In our last article we informed you of TMS's expectations which were for prices to head very near to 10300 and Mondays action saw the index move to 10249.
At this moment in time as long as the Dow Jones fails at 11200-11160 we would expect prices to literally moves towards 11,000 a snap of which would bring into question, if 11,000 will come back again?
Dow Jones Four Hour Chart
The chart above was provided in our previous Safehaven article. As you can see prices are respecting the mapped out scenario above, so far. Ideally we would like prices to slide lower on Tuesday or at least remain flat whilst not producing a close above 11,200
Comparison Time & Flash Crash Warning
Although we would expect the Dow Jones to collapse from current prices we're not saying this will have to be in a one day wonder flash crash move. However the contrarian in us is highlighting complete caution.
The daily chart below shows the similarities:
The Chart above is similar to the formation in which the Dow Jones made highs earlier in April 2010.
We firstly started off with a decline which is labelled by the number 1 in red and is exactly the same as the current number 1 shown in August.
We then surged from those lows just under 10,000 to make highs for 2010 on April the 26th. This is shown by the number 2 in green similar to the current number 2 in September.
Ironically the highs were made on April 26th 2010 and yesterday we approached the very high on September 25th. The question is will phase 3 begin and unfold similarly to previous phase 3 in which took U.S. stock markets to 2010 lows. If this is to be the case we could expect a very turbulent finish to the year. In which just a few months out we could well be moving from the years highs to the year's lows at the end of 2010!
This doesn't necessarily mean we're marrying this notion above but we're certainly cautious to say the least as stocks sit at year highs TMS wants to talk about the year's lows! We may well look back at this and salute the contrarian as risk/reward ratios are have totally flipped at present.
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