Technicals | Jun 02 2010
The Tech Wizard would like to draw attention to the following graph, which provides a clear head and shoulders pattern for the US Dow Jones Industrial Average over the 2007-08 boom and bust.
When the Dow hit a high at 14,000 in July 2007 and pulled back sharply to 12,500, the 20-day moving average was still rising. We had another leg up to the Dow back to 14,200, and then it was back down to the 12,500-12,800 support level.
Again the Dow fought back, to 13750, but the lower high only served to confirm the head and shoulders creation. Then it was goodnight.
Looking at current Dow movements, the Wiz suggests we may be seeing a similar patterm emerging. This would suggest a rally to the 10,550-10,750 range (potentially over 7% from here) to form the second shoulder. After that…well…"You have been warned," warns the Wiz.
