Indiana Grain Company, LLC

Posted: 07/13/10

By: tomgrisafi

The Dow Jones may have a tough time escaping the chart patterns from the Great Depression. It has been evident since August of 2009, that the Dow has been almost mimicking the movements seen in the early 1930s. More recently, CNBC has recognized the chart similarities. A huge head and shoulders topping pattern has formed on the Dow Jones chart, which is the exact pattern that formed in 1930 which took the Dow to unfathomably low levels.

Darly Guppy, CEO at Guppytraders.com, told CNBC that the Dow needs to break through the 10,500 level to escape the bearish set up. He believes a move above the 10,500 level would invalidate the head and shoulders pattern. On Tuesday, the Dow closed near the 10,400 level after rallying for six straight sessions.

Looking at a weekly chart of the Dow Jones, the head and shoulders pattern is very clear now. Although a move above the 10,500 level would be bullish, it does not necessarily mean the pattern will be invalidated. The left shoulder peaked near the 10,700 level, and unless the Dow moves up above its 11,258 high, then the pattern is still valid. However, a move above the 10,800 level would make it much less likely.

Considering the recent media attention, it makes you wonder if this pattern will fail. The same pattern failed back in September of 2009, just after Art Cashin and the media spotted the pattern. However, this is also the same pattern that caused the stock market crash of 2008. It's important at times like these, to be aware of the potential bearish set up, while also being open to the possibility that the pattern may fail.

Source: CNBC, Examiner.com