Thursday, November 20, 2008

DJIA Drops Below 8000

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The DJIA fell more than 5% today and closed below the psychologically important 8000 mark.

As noted in my Stock Market Crash Alert, there is a tendency for dramatic shifts in collective mood when the DJIA reverses below key thousand marks. What's more, these reversals are often associated with "historical shocks". When the DJIA closed at a then all-time high of 2999.75 two days on July 16th and 17th of 1990, the peak coincided with a speech made by Iraqi leader Saddam Hussein threatening Kuwait. Iraq then massed troops on the tiny emirate and on August 2nd invaded causing a Persian Gulf Crisis, oil shock and 25% drop in stock prices. Likewise, the DJIA decisively reversed below the key 10,000 mark on September 6th of 2001, then 9/11 occurred.

Thus, with today's close below Dow 8,000 and what might soon be a break to new lows for the year in the DJIA, one must keep an eye out for historical shocks. Of course, the imploding economy is currently the key factor for Wall Street's growing pessimism, and on that score it is now clear we are entering the Second Great Depression, more than a sufficient historical shock to panic investors.

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