Market Diary:
World Indices:

Saturday, August 6, 2011

Market Jittery Reminds Of 2008

The Straits Times Index

It was a big joke that a perfect symmetrical triangle breakout has turned into a bull trap. If time can be rewound, I will be trapped again. There is no way to avoid it because the setup was valid. It has nothing to do with whether one has interpreted it correctly or wrongly. The only thing I could have done differently to avoid it is not to be so subjective. I have been bearish on Dow but bullish on STI. If only I can be not so naive to think that STI can still be bullish while Dow is bearish, I would not have fallen into this bull trap.

From the next chart onward, I will remove the symmetrical triangle.

Dow Jones Industrial Index

The DJIA lost 10.4% in 10 out of 11 losing streak, a consecutive fall unseen since 1978. The sharp plunge by 512 points on Thursday is the biggest single-day fall since 1 December 2008, the height of the financial crisis, when the Dow plunged 679.95 points in one of the market's worst days ever.

Technically, RSI has dipped into oversold at 23.2 - a level not seen over the past two years. We may see a technical rebound bringing the index back to the neckline of the Head and Shoulder chart pattern before selling resume.

Below is an Elliott Wave chart taken from suggesting the Dow will eventually fall to 9750 by year end. I am unable to validate the chart due to my limited knowledge on Elliott Wave. However, judging at the way Dow has plummeted. I foresee that the market is trying to tell us something. This was exactly what has happened in 2007 October where the onset of the financial crisis was known only after the stock market has plummeted by 11 months till the collapse of Lehmen Brother in 2008 September.

On a much longer time frame chart, I have posted the below quite some time back. The Dow has been tracing a large Head and Shoulder chart pattern in the monthly chart. Since the left shoulder takes several years to complete, the right shoulder is expected to take many years to complete too.