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.
See also: DOW JONES – Stock Market Crash averted by Economic Recovery?
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.
See also: DOW JONES – Stock Market Crash averted by Economic Recovery?
