Posted is a DJIA chart of the current market and a chart of the 1987 top that preceded the crash of that year.
It appears the current pattern in the DJIA is tracing out a very similar looking abc Flat correction as appeared in 1987. Both have a rising wedge in the C wave of the flat. The correction of the down wave in 87 was about 65%. So far, we are in that ball park in the current retracement of the down wave from the April 2010 top. If this observation is correct and the pattern continues to track, this market could melt down over the next few weeks or months. If this happens, it seems it would confound a lot of participants as it would follow on the heels of the big Fed announcement of more easing.
The biggest argument I see against this playing out is the traditional sentiment surveys don't seem as bulled up as would normally be expected for a crash scenario. So it's make or break time. I imagine the market could go sideways to slightly higher for a few more days (up to 10,800 to 10,900 or so) without invalidating the pattern, or it could just roll over from current levels. I think a rally much above 11,000 would likely invalidate the analog.
Kim Rice 8/10/10
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