Chip, yes I have been conspicuously absent from this thread for quite some time now for a number of reasons.
The main one being that I have shifted my priorities from focusing on the 'possible market crash' to strategizing how I will invest a fake $100,000 in the MutualFundWorld investing challenge. The prize to the winner of this contest is a cool one million greenbacks and the odds are 1 in 600 as only 600 people will be in the contest. The contest runs from October 15 to November 15. Wish me luck.
Well, now to the historical market trends of 29, 87, and 97. You asked whether or not the historical trend has been broken or not. The answer to that is yes, it has been broken from a purely matematical standpoint. The value that the DJIA reached on October 7 was 8178 which equates to a value of .9902 . So as you can see the historical trend for this specific time frame has been violated.
So what does this mean now that the current DJIA is not exactly confirming its historical resistance levels? Maybe not as much as I thought before frankly. The only possible explanation I can give for the Dow breaking through the .9700 level is perhaps the abundance of pre-crash discussion which is widely being covered by the news media. But that is just a guess and I don't think I can ever pinpoint an exact reason.
You make a good point Chip that these patterns do not necessarily have to fit each other EXACTLY in order for them to be right. And I admit that I may have become too fixated on pinpointing this downturn to the exact day which is very difficult.
But nevertheless I have to say still that we are again now at a pivotal point in the DJIA. And remember even though the DJIA broke through the historical resistance level it has not yet broken to new highs. In addition, that item seems more and more unlikely now given the fundamental news that is coming out which I will discuss shortly.
As of October 10 closing DJIA I can still see a striking resemblance to the 87 pattern of prices. No they are not exactly alike, tick by tick, but the overall pattern is still very similar. I cannot call the next few weeks exactly but if the similarity of the last month of price movement is any indication, it would seem that we are indeed in the final leg (9th) of this market. That would suggest that we are going to see a lot more down days in the next few weeks than up days.
And amazingly beyond belief, the fundamental news that has come out recently gives a lot more weight to the downside argument than the upside.
As you have probably already heard the PPI number doubled from the previous month. And if you check back to 87 you will find that from July to August the CPI also doubled. It remains to be seen whether the CPI that is coming out this Thursday will confirm what we saw in the PPI a few days back.
So we have a similarity with the movement of inflation to 87. The other item that is also similar is the rising interest rates in Europe, particularly Germany. In the October 20, 1987 New York
Times there is this quote, "The issue of rising German rates is crucial to Mr. Baker. Those increases are widely believed to have been contributing to rises in American rates, which are frequently cited as a provocation for the stock market's plunge..."
As you know Germany recently raised rates as well as some other European central banks. There seems a more likely possibility now that Mr. Greenspan will raise in November.
These two items, inflation and German interest rates, are occuring at similar times (and maybe magnitude with regard to inflation) with respect to the DJIA all time highs in both periods. Why are these fundamentals happening again now as they did in 1987? I have been pondering that question but it is hard for me to find an explanation.
Well I can see the next two weeks as possibly being the more interesting ones of the last four.
Regards,
Tom |
