Candlestick Patterns Show a Faltering Dow

The Dow Industrials Average Index has risen since early March 2009, upon the emergence at that time of an unorthodox Candlestick Reversal Pattern which foretold a massive rise in prices.  The advance first moved explosively, then haltingly, and has now moved explosively again as Funds and individual investors clamor for more and more investment candy while driving prices higher in manic fashion which recalls the excesses of the Tulip Bulb Craze, the South Seas Bubble, and the stock market environments of October 1929, of early 2000, and of October 2007.  The principles are the same, and the outcome will be the same this time too.  Manias always come to an end; and when they do, prices return to levels which are even lower than those which obtained when the mania began.

Actually, what we are seeing now is a mania within a much larger mania, which began about 1995.  This state of facts obviously bodes ill for the future of stock prices.

The current mania in stocks has been accompanied by correlative manias in gold and in silver.  Gold has been driven to a new all-time High; silver has not, although it is tagging along at a lower energy level.  It appears that the interest in gold is founded upon a flight from the Dollar, which in turn has been caused by a perception that inflation is on the way, that there is nowhere for the Dollar to go – except down, and that safety is to be found in the comfort of the ultimate Money, which is gold.

Signs of an expiring mania in gold surround us:  India exchanges billions of U.S. Dollars for gold, at what we perceive to be exactly the wrong time; Harrods now offers physical gold in various forms, “off the shelf;” an agency of the United Nations is contemplating the creation of a new international reserve currency in place of the Dollar, to be based on a “basket” of other currencies which would be “managed” by the agency (which itself is a warning signal); even famous names tout the death of the Dollar and the glories of gold; and – last but not least – public sentiment as well as the opinion of “experts” is overwhelmingly supportive of gold while demeaning the Dollar.

All of these are contrary indicators.  They are beginning to be borne out now by Candlestick Patterns in several time frames in the Dow Industrials, which indicate the probability of a Reversal to the downside soon.  This analysis is supported by negative inferences which we draw from Indicators other than the Candlesticks, which use the Candles as the starting point and proceed from there to visual representations which clearly show that Dow prices are fast coming to a top.

William Kurtz

November 11, 2009