DJIA became the talk of the town with the 900 points free fall

I was just talking about a bad head and shoulder in my last entry on Dow Jones suggesting that it is bearish. I was expecting Dow to go south, but at a gradual pace. So did someone read my entry and got spook to short DJIA components all the way down?

Well, I am kidding and knowing the readership of my blog ( less than 15 with 10% of the count belong to me referring back to my own entries ), I doubt I am that influential. People just read as a reference and I believe they will not act simply because I say which counter is up or down. A good trader or invester will always do his own homework and decide base on his own findings.


Fig 1 DJIA Daily Chart


Fig 2 DJIA Daily Chart inclusive of uptrend trendline

It is still worth while discussing a little about Dow's move on Thursday because this is rather unique. There is no prior warning to the spectacular move at all, it simple fell started at 2:40PM US timing for 1/2 an hour. At the end of the day it covered back about 600 points with around -300 for its daily move. The next day it continued its fall for about 140 points.

While the financial sectors in USA are trying to find a reason for such plunge and checking up to see if it is machine or human error that causes such event. I would still consider the fall as part and parcel of the stcok market, of course from charting aspect.

It is not the first time US experience such plunge without warning, it also happened in the late 80s when Dow fell for a 1,000 points, it was worse then because Dow was only about 2,000 points ( story was told by my teacher ). The effect on the world market then was also more drastic than now, the Singapore market panick and people just threw they stock away, there was no time for anyone to even execute stop loss.

If the move then was acceptable, why the difference now?

If you look at the chart, you will notice a few things:
1) The candle stick was on the negative gradient of the Gann grid Line;
2) The fall stopped at the positive gradient of the Gann grid line;
3) The fall stopped by the support level of 9,895, which coincide with the previous low;
4) The day end was supported at 10,495;
5) Friday shows a continuation of the down trend base on the negative gradient of GannGrid line;
6) The plunge has broken the long term up-trend support (Fig 2);

To me, Dow has not given any abnormality at all. Its crossing the trendline further warn that it is reversing. IF there is one abnormality, it would be that the 5th wave's length does not equal that of 1st which was recorded in my last entry. But then we are dealing with probability and not absolute.

My prediction is that Dow is in process of top formation and is now in progress of its right shoulder. It took 3 months for left shoulder to complete and I figure it will take the same for the right, mirror pattern. If the top formation comes true, then the objective will lead Dow Jones to a minimum of 8,504, it could go lower.