AMERICA MARKET INDECISION

World markets started 2008 with the confirmation of long term head and shoulder chart patterns. These reliable chart patterns provided downside targets. With the America DOW Jones Index the target level was near 11,200. This target was achieved in 2008 July. These patterns provide minimum downside targets. In 2008 markets have exceeded these targets. The DOW Jones Index fell to 7600 before developing a recovery. This has developed a pattern of rally and retreat that points the way to indecision.

Just because the market has stopped falling does not mean a recovery will develop quickly. A market fall must first consolidate and then develop a pattern of recovery or trend reversal. Consolidation patterns include saucers, rounding bottoms, or extended periods of sideways movement where the index hovers near a support level. None of these patterns are developing in the DOW Jones Index.

The DOW Jones index has developed a symmetrical triangle. The pattern is created when two equally correct, but contradictory, trend lines can be plotted on the chart. The uptrend line in this pattern on the weekly chart starts from the low near 7600. The trend line shows buyers are more aggressively moving into the market. Buyers wait for falling price and when the bargain price is irresistible, they re-enter the market. The up sloping trend line shows some buyers are becoming more optimistic.

Many people have a different opinion. They are worried prices are going to continue to weaken. They are sellers in the market. This selling pressure is defined by the down trend line. The two trend lines define two equally correct, but exactly opposite opinions of the market. The symmetrical triangle captures indecision. The balance of probability favoring bulls or bears is evenly balanced. The market can develop a fast breakout in either direction.

The symmetrical triangle is used to calculate the target level for the breakouts. The base of the triangle pattern is measured and this value is projected up and down from the apex of the triangle pattern. The upside projection has a target near 10800. This is near to the strong resistance barrier set by the lower edge of the long term group of averages in the Guppy Multiple Moving Average indicator. The GMMA display shows downtrend pressure is very strong.

The downside target is near 6700. This is below the long term historical support level. A fall to this level suggests America is moving into a Depression. The next strong support is between 5300 and 5800.

The America market is in a dangerous condition. The upside is limited and it will take many months to develop a strong recovery. A fall below 7600 shows the market has significant problems.



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Daryl Guppy, well-known international financial technical analysis expert. Appears regularly on CNBCAsia and is known as "The Chart Man". He is an equity and derivatives trader and author of books including Share Trading, Trend Trading and The 36 Strategies of The Chinese For Financial Traders. He has developed several leading technical indicators used by investors in many markets. His weekly analysis newsletters get favorable comment in Asia and Australia.