INDU Dow Industrials Long-Term Megaphone Expansion Pattern

The long-term perspective is always interesting. The 1990-1991 mini-recession is a distant memory now. Life, and trading, was simpler back then.  The go-go 1990's was an amazing period of economic prosperity that led to the Dot-Com Bubble Crash in 2000 then bottom in 2002.  Chairman Greenspan lowered rates which created the huge Real Estate Bubble that popped in 2005-2007. October 2007 was the market top.  Price is now at these all-time high levels again although the Dow did not yet overtake the prior high, the Dow fell about 150 points short so far. Note the negative divergence spank downs. In 2000, the rising wedge and negative divergence smacked price lower but the MACD wanted another high, which occurred seven years later. That created the purple lines negative divergence spank down. Negative divergence is not in place right now since, by definition, a higher high in price is needed as compared to the October 2007 high. However, with price basically at the same level, look at how the indicators are all negatively diverged (maroon lines). There is no strength to the current move higher.

The olive lines are interesting since the lower low in price, from 2002 compared to the March 2009 bottom, came with an artificial QE1 money pump. Markets were never allowed to properly correct. The indicators all show weak and bleak profiles and wanted to see a lower, or matching low, as compared to the March 2009 low, to produce an acceptable, stable bottom. That never happened. Chairman Bernanke follows in Greenspan's footsteps, dropping money from helicopters with the sole purpose of pumping equity markets. They hope that this phony wealth creation will create confidence and kick-start the economy. Here we are four years later, now trillions more in debt, with a negative GDP and 25 million people underemployed or unemployed. Do you think it is working?

By drawing a steeper upper rail for the expansion pattern, or megaphone pattern, one potential outcome is a pull back now, but then a move back up to print in that space higher, then roll over. The other projection is simply down from here. The maroon lines for the indicators over the last six years, as price prints near new all-time highs, are not encouraging moving forward. Remember, this is the long-term monthly and yearly time frame. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.