DJIA looking very bearish, comparable to the Great Depression

6 gen 2016

It seems with these momentum divergences finally unwinding on the Indices that we are very likely to get another large leg down. What's scary is when you compare the current chart to the chart from the 1930s when the Great Depression happened, you can see that there are some stark similarities. Mainly that we had a huge momentum-backed drop off the peak, followed by a very puny momentum-less rise creating a lower high. At this point, it seems like the bulls have lost all or most of their momentum and that the upside here is very limited and the downside could potentially be very large.

Fundamentally, with rising interest rates and bubbling student loan debt, it seems that the system is becoming unsustainable. Fraud and mania are both very high, and many people are becoming complacent with the gains they are making in the market to the point that the prevailing sentiment is to buy and hold and buy more on the dips. Since the subprime mortgage crisis ended in 2009 when we bailed out the banks and dropped interest rates to all time lows, it seems likely that many people think that this period of growth won't end, however, with rising FED interest rates and with the possibility of bailing out the people (by way of electing Bernie Sanders) and by restricting Wall Street (If Sanders does in-fact get elected) then we are likely to enter into an extremely bearish period in the stock market. Many people think Sanders doesn't have a chance but he has won the most historically accurate mock election in the country (which has NEVER been wrong) so in my view that gives him a very good chance (better than any other candidate) despite what historically inaccurate polls and the MSM portray.

China is also having a major stock market bust. The first day of this year they dropped 7% and had to halt trading based on Chinese Government policies. Had these policies not been in place it could have potentially went much lower, and now that trading is resuming it could potentially continue to fall from these prices. Manufacturing is also looking weak in both china and the US, many companies are not able to keep up the demand for their products and services so are now being forced to scale back their businesses. The US Bank's stocks are also looking very weak. Pharmaceuticals, Health, and Insurance are all looking weak as well. U.S. Defense and Internet stocks look like they may be able to continue going up for a short period of time but they are beginning to slow down too and could still be fairly risky. It seems like there is very limited upside for all of the stock market.

It looks like even the Dollar may be coming to a climax soon, although it may still have some momentum to the upside left in it, it seems much more risky than the Yen or the Euro over the long-term which have both been going down for quite some time and are starting to create very large bullish momentum divergences, whereas the Dollar has been going up for awhile and is starting to create bearish divergences. I think with rising interest rates that currency in general is going to be a fairly safe bet during this economic downturn, but foreign currency is more likely to make larger gains vs. the USDOLLAR. Commodities may end up being the smartest play here, there may still be minor downside left in USOIL and XAUUSD but it seems like it is going to be fairly limited especially if this crisis materializes people will need to move their money somewhere other than Cash, and usually that place is commodities like Gold and Oil.

My target corresponds with 1.618 of the original drop, and also could create a Bullish Harmonic Bat Pattern at that price. Total losses from the top would be about -28%, which is somewhat optimistic when you compare it to the Great Depression's -91%. I do think that the market has matured substantially since then so I think that it will be able to hold up much better than it did almost 90 years ago, however, this could be completely wrong.