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Stock Market Panic in October?


There are stock market patterns that warn of the probability of a reversal in trend and possible panic or crash.

It is not necessary for the third peak in a Broadening Formation to reach the upper trendline drawn in these charts. It simply must terminate at a higher point than the second peak, as did the Broadening Top formation in 2007 that warned of an imminent decline.

The CRB Index does not appear exempt from a probable panic. An interesting observation is that the lower trendline of the Broadening Top may also double as a Head & Shoulders Neckline with a probable target near 162.00 in the CRB.

European stocks offer no safe haven, either. Note that the Broadening Top in 2007 gave ample warning of the ensuing crash in 2008. The current Broadening Formation in 2012 is clearly not a top, but has similarly ominous implications.

An unexpected finding is that both the long bond and the 10-year Treasury note have Broadening Formations. Those prescient enough to own these instruments during the 2008 decline may not be so fortunate this time around. Should the long bond decline through the lower boundary of the formation, currently near 125.00, its price projects to 100!

The charts above are warning signals. History does not favor the complacent, nor does the market reward the crowd -- especially at market tops. There may be comfort in the crowd, but the real rewards come to those diligent enough to see the signs of the times and have courage to take action accordingly.

See more from Anthony M. Cherniawski at The Practical Investor, and more from Janice Dorn, M.D., Ph.D. at Trading With Art and Science.
No positions in stocks mentioned.
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