Dow to Extend Post-Election Plunge by Another 15%: Chart
Three weeks ago, I told CNBC Asia's "Squawk Box," that the Dow Jones Industrial Average suggested a Barack Obama victory. President Obama is not popular with many investors. They are unhappy with proposed tax changes and other aspects of his policy. As the prospect of an Obama victory increased we saw the Dow selloff.
The Index greeted Obama's victory with a more than 2 percent plunge on November 7.
The critical fall was the move below the value of trend line A and the fall below the support resistance level near 13,200.
The fall in the Dow has no nearby support targets. The first confirmed support target is near 12,200. This represents a fall of around 10 percent from the peak of the Dow activity in September.
The outlook is bearish, and more bearish. The bearish outlook is a failure of support near 12,000 and a further fall towards long term historical support near 10,800.
The more bearish outlook is confirmed with the development of a potential head and shoulder pattern. This may include a rebound from near 12,000 followed by a retreat which creates the right shoulder. The height of this pattern is measured, and its no surprise, the downside projection target is near 10,800.
The bearish outlook is invalidated with a sustainable rally above 13,200 and a return to trading above the value of trend line A.
The chart activity does not yet indicate which is the most likely outcome, but the analysis does provide the key trigger points for future behavior.
Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders –www.guppytraders.com . He is a regular guest on CNBC's Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.
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