Technical Analysis: Dow Jones Industrial Average – 2020 Sell-off resemble 1987 September 20, 2021 254

  • The sell-off and subsequent rebound last year 2020 resembles the happens in 1987 October crash.
  • The “quadruple witching” period where 4 different kind of financial asset and derivatives expires simultaneously on third Friday of every Month. Historically, periods of market weakness. (Fig 1.b). Historically, the this event has seen heavy correction during September and October period whereby the latest 1000 point drop occurs last year September 2020.
  • Technicals point to a correction lasting until year-end if October does not enjoy

The yield inverted back in 2007 and the subsequent rise in yield peaked and corrected in Feb08- Mar08 period. Another rise peaked in Sep08 that forced the S&P 500 to suffer a huge bearish correction. At present, the yield movement greatly resembles in 2007-08 period. So should the yield curve pick up, followed by a correction in the S&P 500 index, there is a huge possibility of a major correction coming up especially in the month of “quadruple witching” (Fig 1.b)

 

The correction sell-off will happen after the yield curve rebounded. First, the dot-com era inversion happens in early 2000 and the S&P 500 corrected right after the inversion occurring. The 2008 recession yield inversion happened between 2006-07 and correction sell-off only started a year later. The 2020 Covid-19 sell-off was 6 months after the September 2019 inversion.

 

From the result above, the inversion indicates a higher probability of a correction but the catalyst such as COVID-19, CDOs default in 2020 and Dot-com burst are the main contributing factors.

 

Technical analysis

From 1986 to 2008 during these 2 decades, we dive into the wave theory and find similar pattern on the failure to touch 161.8% extension, which concludes the ((B)) wave of the complex corrective flat which brings the downside correction in 2008.

Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments

About the author

Profile photo of Chua Wei Ren

Chua Wei Ren
Technical Analyst
Phillip Securities Research Pte Ltd

Wei Ren specialises in Technical Analysis and has 11 years of experience in studying classic technical price action. He also study and research extensively on Elliott wave theory, Dow Theory. He believes that history plays an important role in how the market is reflected in the future.

Get access to all the latest market news, reports, technical analysis
by signing up for a free account today!