2 Potentially Dangerous Patterns the Dow Jones is Following

Charts of the stock market can offer clues as to potentially which direction the market is going.  Today, I want to share with you two concerning patterns the Dow Jones is following.

(1)    Bull Market Ending Pattern

Since the 1920’s, the top 5 biggest bear markets have ended in the same pattern the Dow Jones is currently experiencing.  In all 5 cases, the market went back and forth between two lines.  2 of the 5 fell straight through the bottom line turning into a bear market. These 2 bear markets (2000 and 2007) are the most recent bear markets.  3 of 5 exceeded the top line for a period of time, then eventually fell back through the top and bottom lines turning into a bear market.  Currently, the Dow Jones is getting very close to that bottom line.

This is what it looked like in 2000:

(2) Then there is the megaphone pattern.

This is a large multi-year pattern.  They call it a megaphone because when you draw the two lines it looks like a megaphone.

You can see that during the 60’s and the 70’s the Dow went through the megaphone pattern. This is the same pattern as today.  If this continues to duplicate itself, we would be at point 5.  In 1973, point 5 led to a 42% decline in the Dow.

Could these be signals forecasting the road ahead or just noise?  Only time will tell. The bottom line is understand the risk that you are taking.  Markets don’t go up forever.

If you are concerned about risk and don’t have a plan B, let’s talk.  You can call me at 972-386-0384 or email me at bob@prudentmoney.com.

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