I was having a bearish view on the Dow Jones end of June, we continued to see black candle formation in last week price action. There isn’t any good news to stimulate the market lately. July is report season and we will start seeing quarterly report from the companies this week.
I remain bearish in the market. I am a member of TASS and I read a enlightening post today from fellow member Yue Hoong about some facts of the Last 10 Dow Bears formation . History can repeat itself and we can use this as an additional information to decipher the market.
Let’s take a look at the data and facts of the history.
Ned Davis Research’s "The Stock Traders Almanac 2008" has an interesting recap of the last 10 Dow Bears which I summarised it here.
Mar 19 2002 – Oct 9 2002
Dow lost 31.5% in 204 days
Trigger: Worldcom and Enron
Jan 14 2000 - Sept 21 2001
Dow lost 29.7% in 616 days
Trigger: Bursting of dot-com bubbles.
Jun 17 1998 – Aug 31 1998
Dow lost 19.3% in 45 days
Trigger: Collapse of LTCM
Jun 17 1990 – Oct 11 1990
Dow lost 21.2% and lasted 86 days
Trigger: Invasion of Kuwait
Aug 25 1987 – Oct 19 1987
Dow lost 36.1% in 55 days
Trigger: Currency valuations debate between US and Germany
Nov 29 1983 – July 24 19874
Dow lost 15.6% in 238 days
Trigger: Inflation fear.
Apr 27 1981 – Aug 12 1982
Dow lost 24.1% in 472 days
Trigger: Excessive interest rates
Sept 8 1978 – Apr 21 1980
Dow lost 26.9% in 591 days
Trigger: Stagflation
Sept 21 1976 – Feb 28 1978
Dow lost 26.9% in 525 days
Trigger: Stagflation again
Jan 11 1973 – Dec 6 1974
Dow lost 45.1% in 694 days
Trigger: Watergate scandal and trhe Arab-Israel war.
You can see that the bear market can correct Dow by average 30% and lasted for more than a year. So, this may suggest that the whole 2008 will be a bear year for Dow if we consider the down trend starts end of 2007. Also, if I takes the 2007 high at 14,198.1 as a baseline, and if Dow is going to correct 30% in this bear, then, Dow can correct down to a level of 9,938.67 .
Dow is now trading at approximately 11,231 level, meaning that Dow may lose another 1292.33 points . That’s very scary number to see, but as trader, we can be prepared to protect ourselves if this really happen.
However, based on the technical analysis, we will see Dow to dive directly to sub 10,000 level, there is still a strong support at 10725 level. If you are thinking of riding the bear wave to be a bear trader, it is also too high risk to open a short position now. You can monitor the trend and wait for a technical rebound to open a short position at the high of rebound to reap the best benefit.
DISCLAIMER: This information is used for learning purposes only. It does not constitute an offer or solicitation to buy or sell. You should do your own analysis on top of my postings.
