Experts and amateurs alike are scratching their heads trying to figure out when the Dow will bottom out. Everything from economic data and technical analysis are being considered in the search efforts.
I have for you today a couple of technical opinions on where the Dow might come to rest.
First, I was sent this graph (seen below) of the Dow from the early 70′s to today. As you can see, the Dow pumped up the intensity on its up-trend around 1983.
This is most likely due to political influence on the markets as well as an increased interest in the stock market by the public. Workers started getting 401k’s and it is much easier to go long on something rather than short, so a huge increase in buying stocks took place.
Regardless of the cause, the market when into hyper-speed, only to look back on a couple of occasions (but still continuing the climb). The chart below has the original, modest up-trend plotted (the bottom green line) as well as the new, fast-paced channel (the two, top green lines).
You can see how stocks have fallen below the middle green line, marking a breakdown in support. The important thing to note is that there are very few levels of support between where we are now and that bottom green line. This would suggest that the next place for the Dow to find support would be around 2500, ~60% lower than today’s levels.
Dow Monthly - Click To Enlarge
I have done my own analysis on the subject and have come up with a little less bearish prediction.
If you go back even further to the 30′s, using a quarterly chart, we can see that the major trend line suggest that we could see a bottom around 3500. This would just be a 45% drop.
Dow Quarterly - Click To Enlarge
Personally, I think my analysis is more viable because it is much more historic, but both are good points of view. The stock markets’ huge fall these days is not a crash, but rather a correction. It is merely adjusting to more natural levels and the best thing we can do is leave it alone and learn from it.
The good news is we have a president who doesn’t care about the stock market and an administration set on destroying everything related to free market capitalism.
Oh well. I think this should, at least, give investors a new perspective on just how far the market could fall. Watch. Listen. Learn.
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