The State of the Trend

By: George Krum | Sun, Aug 3, 2014
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Last week we warned about the negative implications of the Russell 2000 negative momentum divergence for the other major indices. After struggling at the beginning of the week, the markets finally succumbed to selling pressure on Thursday and Friday. For the IWM, that manifested itself in a break below first resistance at 112 with 107 being the next target:

Russell 2000 Chart

Since Argentina's default on its bond obligations and the collapse of Banco Espirito Santo are credited as being the actual triggers for the global market meltdown which started on July 31st, it is worth taking a trip down memory lane and looking at two historical charts coinciding with two previous international financial crisis events which occurred during this time of year. This takes us back to the Asian financial crisis which started in July of '97, and the Russian (or Ruble) financial crisis which was triggered in August '98.

As the weekly charts below show, the '97 crisis lead to a 13 week long 16% decline in the DJIA, which was over by November of that year:

Dow Jones 1997 Chart

while the '98 crisis was accompanied by a 12 week long 20% drop, which ended in October '98:

Dow Jones 1998 Chart
Charts courtesy of OT Signals

Therefore, if history is any indication, investors shouldn't rush to buy the dip this time. A decline of similar proportion should lead to a retest of the '07 DJIA highs at around 14,000. The tapering of QE and widespread geopolitical and financial trouble may add even more fuel to the fire.



George Krum

Author: George Krum

George Krum

George Krum is the author of the "CIT Dates" blog, and the following apps:

OddsTrader - combines the power of Hurst Channels with proper risk and position size management. For a web version see OT Signals below.

Gann 9 - the only financial app that allows users to effortlessly apply the legendary W.D. Gann's tools and methods for trading (including the Square of 9).

OT Trend - helps you quantify and forecast the seemingly random ebb and flow of stock, index or mutual fund movement.

OT Fibonacci - automates the process of applying Fibonacci numbers, ratios and time series to any security.

OT Seasonal - allows you to perform seasonal analysis on practically any security from around the world, and to build long-term forecasts and models.

OT Pairs - pairs trading, one of the most successful hedge fund trading strategies, is now available on your smart phone.

OT Pivots - combines the power of pivot lines with cycles to provide you with concise technical analysis and powerful trading signals.

OT Signals - a web app accessible from any browser, tablet or pc. It gives buy/sell/hold ratings for any instrument from around the world, and defines the trend and support/resistance levels.

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