Dow Could Fall to 7,500 if 10,600 Is Not Breached, Analyst Says

Posted Jul 19th 2010 10:00AM by Connie Madon
Filed under: Analyst Reports, Technical Analysis, DJIA

Technical analysts look for chart patterns that may predict further price changes. One such analyst is Daryl Guppy, who in a CNBC article has analyzed similarities between the chart patterns following the 1929 stock market crash and the crash of 2008.

Here is his analysis:

In 1929, the market fell 49% from its high. In 2008, the drop was 52%
Following the 1929 crash, the market recovered 46%. After the 2008 crash the market rose 69%
Following the 1930 recovery, the next leg down following the rebound exceeded targets by 28%
If this is the next leg down in the current market, he is looking for Dow 8,400. However, if it exceeds his target, he then projects Dow 7,500 in 2010.

This current downturn started around Dow 10,600. If Dow 10,600 is breached on the upside, then Guppy's analysis is wrong. A strong move above Dow 10,600 would indicate the resumption of an uptrend.

There is one major flaw for those who trade strictly using technical analysis. The charts show only past price action. No one knows what the future will be. Projecting the future from the past market action is not that reliable. For example, none of the technical analysts predicted a 69% rise in the Dow off the bottom of 6,400.

Nevertheless, it's a good idea to listen to and read about the technicians. You should balance that information against the fundamentals. For example, this is earnings season. These numbers indicate what really happened in business in the past three months. Just as with technicals, they too give you a sense of where the market is headed.

Do you believe that the Dow will drop to 8,400 or even 7,500?

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