PATTERN NR. 1
Dow Jones Industrial and the 1987 Pattern & Crash
In today’s update I would like to discuss a Pattern in the DJI that we have seen before.
Let’s start with the bigger picture first.
On the left side, we have the DJI over the period 1986-1987. After a period of basing (red sideways pattern, blue ellipse), the index broke out, showed a vertical move into the black ellipse, and showed another vertical move up (blue line/black parabolic). Once the black parabolic trend broke to the downside, the selling begins and seems unstoppable. Hence, a crash.
Now, back to today, right side. We see the same patterns lining up. History does not even have to repeat to get a major shock on the Stock Market. If history will rhyme a bit, then this does not look good for the bears.
So where are we now? Are we close to a break of the black parabolic trend? To answer that question, we need to take a look at the Daily Chart, scroll down.
DJI WEEKLY CHART 1987 vs 2017
DJI Daily Chart
Now, let’s zoom in on the most recent period.
I tried to make it as clear as possible by using colored ellipses to indicate where we are now (according to my view of course). Based on what I see, I expect tje DJI to be at the orange ellipse. If correct, that would indicate a retest of black support @ 23.000 and then a surge of 4% to new highs @24.000.
Therefore, a short term strategy could be to buy the dip @23k for target 24k. If you have a longer term investment horizon ( a few months to years), then being overweight stocks might not be the best thing to do. Once again, no guarantees, I just wanted to share this pattern and warn people that the risk is to the downside for 2018-2019. For the years after 2020, I’m very bullish (peak to private assets) but that’s something I will discuss in a different setting. First, we need to be prepared for a 25%-25% drop.
The second pattern that I want to share is the resemblance between the Nikkei225 over the period 1986-1990 and the S&P500 2009-2017, scroll down.
PATTERN NR. 2
Nikkei225 1986-1990 vs S&P500 2009-2017
Let’s start with a post from my eToro feed from 12 days ago.
S&P500 Weekly Chart – Targets @ 2595, 2630 and 2670
Basically the S&P500 forms an exact copy of the Nikkei225 pattern. If history keeps on rhyming, then this pattern warns for a 35% drop before the year 2020 is over.
A S&P500 close below 2560 and that’s a first, short term indication we could expect a lot more downside.
So what could you do to protect your capital?
First, you could decrease your long exposure or tighten the stop loss and maybe even take bearish positions yourself.
Or simply invest in my new Investment Fund “Bubble Prep Fund” and let me do the work for you!
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