Losing A Sense Of Direction

October 11th, 2008 at 08:12pm Mitch Mulhall 171

Everyone’s heard of the 1929 stock market crash, right? Ticker tape machines spewing prices. Guys in suits opening skyscraper windows and jumping. From the high price of 386 on September 3, 1929 to the low (which followed the infamous Black Thursday, Monday, and Tuesday on November 13, 1929), the Dow Jones Industrial Average (DJI) lost 49.16% of its value. The Great Depression ensued.

When the closing bell rang at the New York Stock Exchange last Thursday, the DJI had lost 39.43% from its high of 14,165.69 in October, 2007. That’s a full year. That’s recession. Last week alone accounted for whopping 21.04% of that loss. But what’s more interesting to me is what happened on Friday.

After Friday’s opening bell, a huge sell off began, plunging the average to a new low of 7884.82. In a matter of a mere seven minutes, the market dropped 683 points. This was followed by a thirty minute rally that pushed the market back up 777 points to 8662.42. By 10:45, the market had lost steam, dropped, and vacillated between 8384 and 7975—a hefty, four hundred point range. This went on until just before 3:00 pm Eastern when a late-day rally pushed the market up 853 points to 8890.85. At that point the market was up 311.66. With just twenty-four minutes left, a 475 point sell-off occurred in just six minutes. The market recovered back into positive territory, but settled down 128 points at 8451.19.

This is what people mean when they use the term volatile to describe trading activity. The market was all over the place, with several-hundred-point up and down moves in a matter of mere minutes.

Had the market remained at or close to its high of 8890, this trading day would have formed what ancient Japanese rice traders called a Hammer, a strong signal for market reversal. As it turned out, when you consider a range of just shy of one thousand points , the day settled very close to its open, thus forming a Rickshaw Man, or Long Legged Doji. If you are, like me, hoping to see a sign of market recovery, this is good news. While not as promising as a Hammer would have been, a Rickshaw Man indicates that the market has lost its sense of direction.

What we witnessed Friday is a market that hit levels that attracted buyers. Based on my analysis, I calculated that level at 7434.36 mark, over four hundred points lower than Friday’s low of 7884.82. I could not be more pleased that I was wrong. Keep in mind that in the short term the market may still go down—and likely will—but I think it’s close to, if not at the end of, this blistering free-fall.

Entry Filed under: Politics, Aspen, Business