Looks Like We'll See Dow at 10K - Soon?

A reader pointed out a pattern that is not readily visible on the normal bar charts most of us use. Using a close-only chart, a megaphone or expanding triangle pattern appears and it has one interesting implication. Check this:

click to enlarge

Is it possible to see Dow 10K in the next few weeks to months? It sure looks that way.

This pattern is usually analyzed as a topping pattern so I am not so sure that the reverse is true as a bottoming pattern. But it does give us some sort of structure to follow.

How about this? After reaching 10K it forms a regular triangle on the back side - creating a diamond pattern. Again, diamonds are thought to be tops so who knows what it might really mean? But then again, who ever expected the VIX to hit 89!

The old rules are up for rewriting.

Comments

[Daniel Eskin:]

As much as I've tried appreciating technical analysis lately, there's just too much uncertainty and new information that becomes available that renders it pretty useless. I don't think any technical analysis would have predicted Dow at 8500 and lower.

At this point in time, you have to look at economic conditions and events instead of technical analysis.

1. Recession and unemployment is increasing
2. US announced another $800 billion loan to consumers... Where are they getting the money? Printing is the only option.. (look it up)
3. This point worries me the most... Obama came out and spoke on TV three days in a row! You might be thinking... who cares? Well... Usually the president doesn’t even open his mouth until he gets to the office... But Obama announced his financial team plus his ECONOMIC ADVISORY team... something that hasn’t been done since the depression..

I can see down near the 6000 or 5000 levels in the next few months to a year.

Good article anyway but any rallies now would just be fool's rallies.

2008 Dec 04 08:06 AM

[herbert hoover:]

Based on the "triangle" why wouldn't the DJ go down, not up? The scarey part is the the bottom of the triangle isn't even visible. Dow at 10000? Sure it's possible. Just as possible it goes to the bottom of the triangle at 6000. Based on the current economic climate, that number seems just as viable.

2008 Dec 04 08:27 AM

[Pauly B:]

I suppose anything is possible but all the long term trends still point down. Ive also seen technicians interpreting that this is bearish triangle flag and that next major stop is DOW 7200. In addition I dont see anything from the bond markets telling me that money is flowing out of bonds and into equities. Huge amounts of money are parked over there.

2008 Dec 04 08:33 AM

[James G:]

That is wishful thinking, not good charting. If, and only if the Dow hits 10,000 would we have formed a new trading range and even then a trading channel would not be established. The trading channel is formed by the latest three highs and the latest three lows. Look again, they still point downward. It wil take more than a "blip" to reverse the downward trend. We will need three higher highs confirmed by at least two hlgher lows to indicate a change in trend. Don't try to tell the market what to do.Let It tell you what to do. "The trend is your friend."

2008 Dec 04 08:34 AM

[Slick Irons:]

I agree. I see what happened in 1938-1939, as a prologue to today. Seventy years ago, we experienced a bad recession and a vicious Bear market. We eventually regained more than half of what we lost. Expect History to ryhme, if not repeat...


Slick

2008 Dec 04 09:07 AM

[je:]

I think it is a pattern of indecision. We are currently in a down trend channel and until overhead resistance is broken from the last two DOW highs then we remain in a down trend.

That being said we are also in a news driven market and with the autos potentially getting a bailout and the new mortgage plan that was just unveiled the market could go up but it would probably be a couple of 600-800 up days that you will probably not get a chance to participate in because of the weekend theatrics that has become common by the FED.

2008 Dec 04 09:14 AM

[mcadoo3312:]

I agree that longer term technical doesn't carry much weight in this environment, but when you drill down to weekly and daily charts, movement at resistance and support levels is pretty clear. Still hard to make investment decisions, but very interesting to watch.

2008 Dec 04 09:45 AM

[YoYoMama:]

If I remember correctly, just last week - when the market was tanking - someone on Seeking Alpha was predicting the Dow to go to 6300. Well, surprise, surprise. It's now at about 8500.

There is a tendency to predict where the Dow will go based on where we are in the moment. We can read into the technical indicators what we want to, and the interpretation tends to be emotional, rather than logical.

It's all rather annoying. I tend to believe that those who put too much trust in the pundits and the chartists are leaving their common sense at the door. Now, class, repeat after me....fundamentals...f...

2008 Dec 04 09:47 AM

[ebworthen:]

You said it yourself:

"This pattern is usually analyzed as a topping pattern so I am not so sure that the reverse is true as a bottoming pattern."

You know the bottom is not in, you wish it were.

Fiat currency since '71, biggest bull market ever '82 to '99, small correction in '01, and since then Western Civilization maintaining or artificially increasing living standard with debt and consumption.

This equals = Depression.

DOW 6,000 or lower.

Civil disobedience, riots, wars, collapse.

No one wants this, everyone feels it in their gut.

Stop the consumption and greed and living for the moment before it is too late.

2008 Dec 04 09:48 AM

[venividivici:]

The market keeps trying to go up in the face of increasingly dreadful news so I suppose anything is possible, particularly if the participants are prepared to hang their hat on threadbare rubbish like this article. In the end reality will reign, and the reality just keeps getting darker and darker.

2008 Dec 04 10:11 AM

[redink:]

I agree. For example here is a very real probability, if Israel bombs Iran's nuclear facilities, which is very probable and sooner than later, then all this techical analysis and the Dow at 10K will be rubbish and oil will be back into the stratosphere.


On Dec 04 10:11 AM venividivici wrote:

> The market keeps trying to go up in the face of increasingly dreadful
> news so I suppose anything is possible, particularly if the participants
> are prepared to hang their hat on threadbare rubbish like this article.
> In the end reality will reign, and the reality just keeps getting
> darker and darker.

2008 Dec 04 10:51 AM

[Stevie West...:]

The 'rallies' we have been witnessing have be of low volume and questionable as useful indicators. Technical analysis might be otherwise useful, however in this unprecedented environment it is of little value. Note that futurists always use the past the predict the future, and get it wrong about 99% of the time. Twain put it best: "I never make predictions...especial... about the future".

Our expectations have been lowered and warped to the point that we get excited when the government decides to spend OUR money to bail out aging business run by inept and/or corrupt management. What the government, financial industry and media are trying to do is cheer lead the market so as to avoid a wholesale run on the markets, banks, etc. Nobody trusts any of these institutions anymore. The US economy has cancer, and sending it to a tanning salon won't help. Yes, it's that bad.

2008 Dec 04 10:58 AM

[RCA:]

On Dec 04 10:51 AM oily wrote:

> I agree. For example here is a very real probability, if Israel bombs
> Iran's nuclear facilities, which is very probable and sooner than
> later, then all this techical analysis and the Dow at 10K will be
> rubbish and oil will be back into the stratosphere.

Or if India and Pakistan escalate their rhetoric into armed conflict. A nuclear skirmish is highly unlikely, IMO, but the threat of such can be very economically upsetting, nontheless.

2008 Dec 04 12:36 PM

[Shakes:]

looks to me that the dow is testing and then breaking through to subsequently lower lows, and that we're far more likely due for 5000 than 10000...

2008 Dec 04 02:22 PM

[Spaceburger:]

If you really want some fancy TA, here it is:
We are in a massive downward triangle (11000-8300 (approx), Oct till today) that has already shown a crack down to 7500, and we are back at the apex.
If it breaks again (which should happen very soon), I expect to it to hit below 7000.

2008 Dec 04 05:56 PM

[Hacksaw:]

The pattern in the chart above, in elliott wave terms is an expanding triangle. If true it is actually extremely bearish, after the rally to 10000 which would complete the final up move a sharp thrust to new lows would ensue. Typical target is equal to the widest part of the triangle which is 2500 points. That said, you would be looking at downside target of 5000! All that said, the pattern above is not ideal as there is a five wave move from the Nov 4 high to the nov 20 low and the expanding triangle should have a three wave move in that position. We'll see what the market brings.

2008 Dec 04 07:31 PM

[ozcutty2:]

Buy the company not the market. Aapl are selling millions of iphones, PM is selling millions of cigerettes, do you think they care about the "so call" market, which lets face it, is nothing more than a sentiment index, an artificially manipulated one at that.

2008 Dec 04 10:49 PM

[Rob Viglione:]

If the contrarian mantra holds any validity it might make sense to think long on the market. Just look at the overwhelmingly negative perceptions on this article, for starters. Then turn on the news, listen to the radio, or stand by the cooler at work and eavesdrop on some of the conversations...those you'd never expect to think about the markets are all professing their despair and fears for the worst.

It's in environments like this that we need to start thinking about incrementally buying long. There's a ton of bad news, but much of it is already priced into markets...there may yet be more to add to the list that surprises further towards the downside, but there are some great assets on fire sale right now.

On this point, I suppose I would look to fundamental values on an individual level. One asset class to consider...corporate debt. Great hedge on deflation and yields are extremely attractive. If you don't know enough about picking individual bonds, consider BlackRock Corporate High Yield Fund (COY) with a forward dividend yield of 21%.

2008 Dec 05 01:38 AM

[bobbobwhite:]

All these guys writing about the Dow going to 10,000 should learn to counter that with saying the Dow will fall to 4-5-6,000. That way, they might be right about something at least.

Getting real tired of the pollyanna pumpers writing this type of article these days. Do they really not see what is going on? We are in for a great deal of systemic pain, and little will be the same after as it was before.

Wall Street and Washington really did it to us this time.

2008 Dec 05 02:40 PM