The following chart shows an inverse head and shoulders breakout in the S&P. Given that currencies like to trail equities, this suggests that we could see further gains in the EUR/USD and maybe even USD/JPY.
Here’s an interesting chart from Nomura’s Technical Strategist showing how there seems to be a nearly a perfect 14 session cycle between peaks. It looks to me like some of the peaks are VERY short-lived but nonetheless it is an interesting chart with a pattern that’s worth keeping in mind because it suggests that stocks are due for a deeper correction.
What do you make of this?
With the Dow Jones Industrial Average hitting 5 year lows today, the burning question on everyone’s mind is, how far can stocks fall.
This is a perfect time to republish a post that I wrote in the middle of October titled DJIA: Does the Past Offer Hope?
Here is a very interesting chart published by Barclays Capital. They compare the current equity market movements to that of the “Panic of 1907.”
The similarities are striking. In 1907, the last leg lower in the Dow was the 37% decline that lasted from the second quarter to the fourth quarter. So far this year we have only seen a 34% decline from the August high of 11867 to the October low of 7882. Another 3 percent decline would bring the Dow down to 7475.
Click to Enlarge
The price action in the Dow in 1907 suggests that there could be one final push lower in equities before a long term bottom and when a rally does happen, it could be as much as 20 percent. Afterward, expect a long phase of consolidation. Back in 1907, there was a 15 year consolidation before the stock market picked up once again and we entered the Roaring 20s.
Here’s a chart of the Dow from 1900-2004 (click to enlarge)
Here is the “In the Financial Papers Radio Broadcast” (Length: 07:49 minutes). The player should load automatically. Please let me know if you like it. Contact Kathy
In the Financial Papers:
Jobless Claims Breach 400k
Bernanke Says Recession May be near
US Slowdown Takes Toll Across the Globe
US Factory Orders Fall for Second Month in a Row
Credit Crisis May Advance European Cross-Border Bank Rules
Making Sense Of Mixed Signs On Recession
Troubles in the UK
Australia prospers from China’s resource needs
Japan opposition in no hurry to fill BoJ post
Why the euro is unlikely to eclipse the dollar
US stocks have fallen over 7 percent since the beginning of the year. For US traders, investors and anyone with a 401k, this certainly feels like a bear market.
However, the performance of US stocks isn’t nearly as bad as the performance of equities in many other countries around the world. According to the WSJ’s World of Hurt, the biggest loser has been China (Shanghai Composite) which has dropped 32 percent YTD.
Just to put this into perspective, if the Dow dropped 32 percent, it would be near 9000!
The best performing stock markets are Mexico and Taiwan which have been unchanged since the beginning of the year.