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Dow Jones Crash | A Technical Prediction

|Includes: ProShares Short Dow 30 ETF (DOG), DXD, SDOW

dow jones crash

Why The Dow Jones Will Reach 11700 Sooner Than Expected

Stocks and Markets rise and fall in discernible patterns motivated by our collective emotions. These emotional patterns remain present in the markets despite Government manipulation through programs such as Currency Swap agreements with the EBC, Quantitative easing programs, and other monetary injections of capital into markets that are simply too numerous to catalog for the purpose of this article. These injections of capital will produce a overall positive trend in the markets, yet contained within the trend are periods of volatile downside risk.

This article will outline a comprehensive technical analysis of the Dow Jones Industrial Average (DJIA) using numerous methods to predict a likely move the DJIA will soon reach 11700 points. We will use trend analysis, Fibonacci retracements with support and resistance levels to determine our conclusion. If history is indeed a repeatable lesson to learn, it will lend even more credence to our thesis.

The Trend Is Your Friend Until It Ends

The chart below depicts two recent trends in the DJIA depicted by the dotted green upward slanting lines. The general rule with trend lines is that once they are violated, a move in the opposite direction will occur.

Dow jones technical analysis

The first green trend line follows along as a support, pushing the DJIA upward to 12876 points. After the rising trend line was violated in May of 2011, a new high failed to be reached, and we witnessed a very sharp pull back and the DJIA fell until it stabilized in the 10600 point area in September that same year. Let us take note of the grey horizontal lines which indicate Fibonacci retracements. Fibonacci retracements are common retracement patterns that stocks and markets can retrace to. Acquiring a calculation from the beginning to the end of a trend, common Fibonacci retracement areas are 38.2%, 50.0% and 61.8%. After the first trend ended, the DJIA crashed a near perfect 61.8% retracement.

The second trend indicated in our chart began at around 10600 points on the DJIA and lasted until around 13338 points on the DJIA. Our chart indicates that the trend line was violated in April 2012, and just two weeks ago failed to reach a new high. Currently the DJIA is being supported at 12700 points. It is worthwhile to note that a previous resistance had existed at this level. Technical analysis suggests that once a resistance level is violated, that same level will behave as a support. This is likely why this level has been chosen to act as a current and quite possibly temporary support.

Any violation of this 12700 support level will likely trigger a completion of the 61.8% retrace that will place the DJIA right near our target of 11700 points. Now that the upward trend has ended, history will repeat. The rules of technical analysis suggest that a subsequent downward move must now follow. This target prediction is reinforced as the DJIA had previously built up a very strong resistance at this level, and it likely will behave as a support in the future.

How To Profit From This Knowledge

You can short the DJIA and profit from it by purchasing shares in a reverse EFT and some examples are below:

DOG - Short Dow 30 DXD - UltraShort Dow 30 SDOW - UltraPro Short Dow 30

You want to be very selective on your strategy with this type of a setup to minimize risk as much as possible. Below are two methods you could use when determining your entry to minimize risk. Method one consists of patiently waiting at the 13330 point resistance area on the DJIA, expecting a eventual sharp pull back. Remember that A violation of this resistance area will offset any bear prediction and you will want to exit your short position immediately. Method two consists of waiting for the violation of the 12700 support level and entering just below it. We would want to exit if the price moved back above it to minimize our risk.

Whichever method you choose, remember you will be minimizing risk which is the way to succeed when trading the markets. If the trade moves in your favor, develop a strategy to maximize your gains. At Stock Legends we cannot guarantee a 11700 point DJIA, but if history repeats and the rules of technical analysis apply, it is a high possibility.

Be sure to stop by the Stock Legends Technical Analysis Chart School for free training videos and articles to learn more about technical analysis.

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Happy Trading

Matt Chart