The Dow Jones Stock Market Crash of 2010 looks like it’s begun, with the third week of trade for 2010 showing a 5% decline from top (see Chart below). A stock market crash is defined as a sudden dramatic decline, of 10% or more, in the stock market index. So, another week like this, or a further 5% decline, would define the current trend as a stock market crash. The Dow Jones Industrial Averages has hovered around the all important 50% Retrace level (see Related Articles below) since mid-November, and has taken over 2 months to push only 400 points higher (4% up). These gains were quickly wiped out in a few days, ending the week on Friday 22 January closing at 10173 points. The Dow is currently trading almost 200 points below the 50% Retrace level, and looking to confirm that the bear market decline will continue. As written in previous articles (see Related Articles below) the Dow would need to break the 50% Retrace level on the upside, by a significant amount, to prove that we are in a bull market now, but it has not.
Dow Jones Chart – 22 January 2010
The 50% is at 10360 points, Gann (a master of technical analysis) tells us, that the 50% point is the most important of all. It is a good guide as to the strength of a particular stock or index. To prove the Dow Jones will go higher, it should break 5%+ higher than the 50% Retrace level, or 10880. Only then, we can all agree in basic Gann stock market technical analysis terms, that the market is continuing its bull run, and has been miraculously resurrected again as the immortal bull!
This last week has broken the sideways snail-paced rally of the last few months, and put the Dow back below the 50% retrace level again. Another strong confirmation that the Dow Jones has reached a major high, and will continue its decline, is that the January 2010 top completes a Gann 10 year cycle exactly, from the January 2000 major high, established just before the Tech bust (14 Jan 2000 to 14 Jan 2010 – 10 years to the day). If you are thinking of trading Dow Jones index on the short side, a nice spot to place your order is around the 10360 mark, to catch the inevitable reaction rally! Place your stop 100-300 points away, or to be sure, at 10880. On the way down, there looks to be some support at around 10050, then 9600, 9100, 8200, 6900, 5500. President Obama restricting bank’s investment in hedge funds is supposedly to blame for the market’s recent drops, but any story will do, when its due its due!
As written in previous articles (see Related Articles below) the Dow Jones (and world stock markets) are still in a bear market, yes, still on a long term cycle of decline, after the most exuberant period of financial growth and debt increase in history. The Dow Jones Stock Market Crash 2010 looks quite likely now, and will be longer and more severe than expected. As we have just seen the longest rally in the current cycle, we are about to witness the longest decline (in time) of this bear market cycle. This phase of the decline should last a minimum of 2-3 months, but with a few short-lived rallies, may go much longer. Mid-June 2010 looks like a pivotal time point for the year, and a possible bottom of this wave down. This is the “painful” part of the cycle, when total lack of hope sets in, as markets and banks unwind with unstoppable losses accrued daily. Lack of faith in the financial system sets in and the spiral goes more out of control. Credit evaporates and cash becomes scarce. Corporations fall, banks go broke, and government debt defaults begin. World leaders grasp at straws trying to regulate a working financial system into play.
Robert Prechter has a lot to say about deflation due to enormous debt growth. One of his main recommendations is to buy Gold as protection – Gold is always seen as a safe haven in turbulent times, and usually increases in value at such times.
How low will the Dow Jones Stock Market Crash go? Pretty low, as there are enormous amounts of debt built into the system, and all this debt needs to be resolved in a deflationary environment. Some analysts have forecast an extreme low on the Dow Jones of around 1500 points, this looks likely. The closest timing we could get to a possible bottom of this cycle, is late 2012, completing a Gann 10 year cycle from the 2002 major low.
Another stock market crash looks inevitable, with major debt problems in Greece & PIGS, US debt also growing like there’s no tomorrow, the deflationary pressures are too great to avoid. Expect the next Great Depression to begin in 2012, just like the last depression took hold after the Dow hit bottom in 1932.
Mark, I like your thinking.
I guess if / when it does happen, it will pay greatly to be able to take advantage of it rather than panicking or sitting on the sidelines!
You should probably stop talking like you know Robert Prechter. His forecast for gold does not even remotely resemble your comments relative to his recommendations. You are merely promoting (masking) your own ‘feelings’ by quoting proven experts. Your un-informed comments are not appreciated. Do your own research. Make a name for yourself rather than trying to make a name for yourself mis-representing others. Maybe you should get a real job… or something….whatever you do, quit mis-representing qualified pros like Prechter.
Thanks Keith, you are helping to bring attention to some of Prechter’s recommendations, which I will clarify here. This is not primarily a Prechter article, but I will write one shortly, as he stirrs great interest amongst traders and is worthy of further study.
Robert Prechter’s main 2 recommendations to weather this deflationary phase (at the moment as I understand), are to buy and hold US dollars (cash), and some physical gold as well (which he says will experience a pullback – this creates better buying opportunities). I tell you Keith, when the monetary system really implodes I would rather be holding physical gold, than any dinky paper.
Hi There Mark,I presume thats your name its late and I cant see it elsewhere.Could you tell me with this huge monetary implosion thats coming and appears to be coming slowly,have the fundamental rules of elliot wave been breached with the rally?
The media in Australia attacked Pro Steve Keen in the street the other day because the housing prices havent dived here yet,as he predicted,they didnt give him much time to answer either.When I see what you get for say 400 k in America in a good suburb as opposed to what you get in australia for the same money (a dump) it boggles the mind.We seem to be lagging behind the rest of the world with the GFT crisis.It has to catch up with our houses prices and general economy in the end though doesnt it?
Thanks in advance, Steven
Regards Steven Moore
Hi Steven, my name is George (see About page) also known as Admin. According to practitioners of Elliot Wave Theory, the guidelines are never breached, if they seem to be then it is the applied interpretation of them that is faulty, and should be adjusted. I am no expert with Elliot Waves (I love Gann), but do take note of the wave formations, as I see recognizable fractals repeat on charts, both at macro and micro scales.
In Elliot Wave terms on the Dow Jones, I believe we are currently completing the top of Wave 2 of Wave 1 of the bigger Wave 3 down. The whole rally from March 2009 through January 2010 is merely Wave 2 of a long term bear market (and was exactly 1.618 fibonacci ratio in time of the whole run down from October 2007 extreme high to March 2009 major low). The point in time we just hit on Friday 12 March 2010 (top of a wave 2), is exactly a 1.618 fibonacci multiple of the time period that preceeded it (a wave 1) from 14 January 2010 high to 5 February 2010 low – 22 days X 1.618 = 35.6 days, or in traded days, 15 X 1.618 = 24.3, which brings us to today. This looks to me a top (or possibly 1 more day rounding decimals), and then should follow Wave 3 (down) of Wave 1 of the bigger Wave 3. If I am wrong, and this proves to be the almighty-bull-market, this formation may be seen as an A-B-C retracement before the market carries on to break the January 2010 high and keep rallying. Either way, we are about to see a leg down.
The other strong factor I see that is proving major resistance on the Dow, is its inability to break above and away from the 1994-2002 bottom trend-line (per basic dow theory). That trend-line currently sits around 10620 points. There where 3 attempts late last year (2009) to get past it, the 4th attempt broke through (by 2%) to establish the January high, then we saw the Dow plummet over 900 points off that effort. Now it is trying to breach it once again, but is finding strong resistance. Wait and see.
On the subject of the Australian economy, GFC, and property prices – I believe the Australian scenario will play out similarly to that which will occur in China. Both the charts and fundamentals suggest that they will keep expanding like an over-stretched balloon, to phenomenal levels, before bursting even faster, and more incredibly than anywhere else in the world! The bust will come as an utter shockwave, the greater this expansion continues, the swifter and more devastating will be its conclusion. More to come…