UPDATE: Stock Market Pattern Signaling Trouble Ahead

A few weeks ago, I wrote about a troubling pattern that has been developing over the past 13 years in the Dow Jones Industrial Average.   I wanted to give you an update. As a review, the stock market moves in patterns. On occasions, you will see these patterns repeat themselves. Below you will what is called a Megaphone Pattern. It is called that way because the pattern is in the shape of a megaphone.

You can see below, that this pattern developed over a long period between 1966 and 1976.

As you can see, there are 6 main points. Point 5 to point 6 is the more significant decline of the pattern. The exact same pattern is playing out today. This pattern is much bigger. Think of it in terms of the development of a hurricane. Hurricanes develop in certain patterns. The environment has to be just right for the development to occur. Some develop into big hurricanes and some fizzle out. This pattern has been developing now for 15 years.

Just like in the 60’s and 70’s, there have been distinctive points. Today it looks like we are at point 5. If so, point 5 to point 6 would be a very large decline. During the 70’s, the drop from point 5 to point 6 was -45%.

What are the signs to look for to confirm the suspicion?

You want to look at how the market reacts when it gets to those points. This is what it looks like at potential point 5 today.

The stock market will get to that point and either successfully rise above it and nullify the pattern or struggle and start a decline. Unfortunately, the latter is happening right now. This definitely bears watching. I don’t write this to over sensationalize the current weakness in the stock market. I write this so that you can get a better view of what risk looks like. At any given time, the Dow Jones could nullify this pattern and strengthen again.

Next week, I will be rolling out a very detailed webinar on what this looks like and how this also potentially ties into the Shemitah year. There are some very interesting similarities.

If you are concerned about the risk you are taking, I am happy to evaluate your risk level by taking this survey as well as give you an opinion on your investments.  You can either all my office at 972-386-0384 or email me at bob@prudentmoney.com

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