The Anatomy of a Major Reversal

15. December 2008
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History repeats itself, so it's foolish not to learn from the past. 

The beginning of 2003 marked the beginning of a great rally in the dow to take it from 7500 up to 14,000.  What could have told us that this was going to happen right at that spot?

Here is a suggestion to consider... 

Below is a monthly chart of the Dow showing the behavior at that major pivot at the beginning of 2003.  If the overall monthly chart is right at support that's a multiple of 90° (See the larger picture), start looking for a balanced 45° movement as shown on the chart (45° up, then 45° down).  Just a 30° movement could be a sign of a continuation lower (instead of a reversal). 

 

 

Below is the current Dow monthly chart.  Does this look anything like the above chart?  Yes and no.  We do have an amazing reversal right off the 180° level (which is a multiple of 90°).  However, it is too early to tell if we will continue down another 90° (to 270° (4983)) or start putting in a bottom here.  In any case, it will take months to play out.

Some bold predictions... I've taken a measurement off the Oct 2007 close, the peak month of the rally (see chart below).  We bounced exactly off the 180° level in November.  However, IF we see 4983 (270°), then see a rally to 5755 (30° retracement) that does not hold, look for that 3000 level!  If we see a rally to 6161 (45°) off that 4983, look for a retest of 4983-5362, then BUY!   Now THAT will be your bottom.  Though, with that said, one thing you can count on is the market will be right.  The market is always right.

In any case, depending on where December closes, I'm expecting to see a rally to 9000 early in January (a 30° rally... or perhaps a multiple of 30° rally), then a continuation down to the next 90° level, 4983!  It took us a year to move down that 180° and that was a tremendous distance at a tremendous speed.  I don't expect us to fall that quickly from here, so it may take another year to just put in that next 90°. 

 

Lesson

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