Some more Dow history

Continuing the top series…

Be sure to look at the lines on these charts, including RSI trends. If you gave Paul Tudor Jones nothing but graph paper and a ruler and he would still be a star. With price and RSI, you have all you need technique-wise. The rest is all emotional.

Prophet.net

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Here’s something I find interesting. A line connecting the bottom ticks in the 1974 and 1978 crashes precisely arrested the 1987 crash.

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The crash of ’08 solidly busted it:

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Skeptical that these old trendlines matter? Look at the support line connecting the depression lows of July 1932 (40) and May 1942 (92). It served as support an addional five times, and when it was finally breached in 1969 at 920 the market crashed that very week and entered a decade-long bear market.

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One more oldie is still very much in play, the line connecting the secular bear market lows of 1932 and 1974. Today it runs today through roughly Dow 5600:

Stock market action bolsters case for a top.

The tide is turning. We now have a strong, impulsive decline off the highs, confirmed by a rise in the dollar and declines in the metals, energy, and grains. Yes, we’ve seen this before (in June, August and September), but the sustained manic conditions (put/call ratio, DSI, etc) that we saw in mid-September and mid-October are unlikely to be revived. When momentum runs out and there are no fundamentals to offer support, stocks can fall under their own weight. They don’t need a catalyst.

The Russell 2000 (like the SPX and Nasdaq) has just busted through its big support line drawn from the March lows to the July lows:

Source: Interactive Brokers

The SPX (S&P 500) has put a toe over the same line, while the Dow has a bit to go. Here’s the SPX:

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Things are looking very bearish intermediate-term, but for the next day or two, I think the odds favor a small bounce. We’ve had two strong weeks of declines, and the overbought, over-bullish condition is cleared for now. I’m long stock futures (and a touch of oil and gold) from today’s lows to hedge my put position. Positioned like this, I get no benefit from further declines, and preserve equity to re-short any rally.

Remember, if this decline resembles that of ’30 or ’37, ALL of this year’s gains could be wiped out in a mere three months. If this is wave 3, it could be much faster than wave 1 (Oct 2007 – March 2009). It marks the start of the worst part of the depression. If you know anyone who owns stocks or is thinking of getting back in, implore them to seek safety (Treasury-only money market funds). Likewise, right now may be the last chance in 20 years to unload real estate at 2003 prices.