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Enron
Meltdown| We Won't Get
Fooled Again!
Technical
Analysis of The Dow Jones Industrial Average The Mortgage
Market Meltdown - Summer 2007
Proverb:
There is more than one way to skin a cat.
By having the proper Support Levels and Trend
lines drawn, a Chart Reader could see that the Dow
Jones was in trouble days before the Meltdown.
By using just Support levels and extended trend line
analysis, and without using other technical chart
reading methods, major signals were given about what
was going to happen next.
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Extended Trend line A, drawn connecting
bottoms from October 2005 until it broke down in May 2006,
became an upper limit for the Dow. At Points
1 and 1a
the Dow retreated from extended Trend line A.
At Point 2,
the Dow hit 14,000 AND extended Trend line
A marking a top. (Trend lines - Cards T6,
T7, T8, T9). After the Dow peaked at 14,000 and reversed,
Support Top 1, formed by the three tops
lined up at the same level, was broken. This breaking
of support was the first signal TO GET OUT. (Support
- Cards T1, T3, T5).
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Extended Trend line C, which was drawn connecting
the bottoms of the Dow trend from December 2006 until
it broke down in February 2007, was the first trend line
to catch and support the falling Dow. A
trend line is broken after TWO CONSECUTIVE closes below
the trend line, and Trend line C
was not broken the first three times only one close through
occurred.
At Point 3 the
Dow had rallied off of Trend line C's
support, but was halted at Support Top 1
- now acting as resistance. (Change of Polarity
Principle - Card T4).
At Point 4
Trend line C was finally broken with two consecutive
closes below it. This was the second major signal
to get out, and shortly after this the Dow plunged intra-day
all the way down to 12,517 before rebounding.
The Dow's major reversal day on August 16, 2007 (a
Hammer day) was a bounce reacting to support levels
it broke during the day - Support Tops 2 and 3
- and below these support levels the traders and computers
started buying.
The next day at Point 5,
on August 17, 2007, the Fed cut the bank lending rate
rallying the Dow right back up to Trend line B
- which is a major trend line for the Dow dating back
to the beginning of this entire Market rally from July
of 2006.
These
Trend and Support Lines work! |
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The Dow Jones reaction
to the Emergency Fed Rate Cut on August 17, 2007 stopped
the Market Mortgage Meltdown temporarily. The
first bullish signal using JUST trend line analysis came
two weeks later on August 31, 2007 |
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The bottom trade of the market meltdown in August of
2007 occurred on a Candlestick known as a 'Hammer' on
the 16th of August which was a huge reversal day. This
Hammer's lower shadow traded
down through two support levels and then rebounded that day resulting in what is
called a 'Hammer and Spring'. This was the first signal
that a temporary bottom may be in. (Hammer - Card C7).
The next day, on August 17th, 2007 the Federal Reserve,
in a surprise move, cut the inter-bank lending rate by
50 basis points to inject liquidity into the financial
markets.
After this bottom, the Dow finally broke the confirmed down trend
it was in (red line on chart) on August 31st - this was the second bullish
signal you would have seen if you knew how to read
charts.
The Dow experienced a 'pullback' at
Point 1 but quickly
recovered to go on and break to new all time highs at
Point 2 (14,088 - October 1). Many times a
pullback, commonly called 'shakeouts' occur before the
beginning of a strong move. The move off the
pullback was almost 1,000 points on the Dow as of
October 1, 2007. (Pullback - T13, T14, T17).
Hammer,
Hammer & Spring, Pullbacks - Just a few more concepts
that can make you money.
Buy
Now
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© 2008 StockTradingCards.com |
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