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Dow Jones and the extreme bullishness

It took the Dow Jones Industrial Average only a little over two weeks to step back from the all-time high of 17 148 to as low as 16 434. To be exact, it was a 714-point sell-off in just 12 trading days. 317 lost on July 31st alone. If you are getting nervous while reading these figures, you are probably one of the very few. Because the majority of traders and investors, as well as the mainstream business media, simply do not care. Here are some excerpts, illustrating the extreme bullishness ruling over the markets right now.

 

“Thursday marked the 10th time this year the Dow fell by at least 1% in a given day. In eight of the previous nine instances, the Dow regained those losses and traded higher within one month’s time” – The Wall Street Journal –

 

“Ignore the bears and you could bank a 22% stock market gain” – MarketWatch –

 

Ignore the bears?! Really?! It was 4 or 5 years ago when everyone was terrified by the bears and now they are ignoring them. This should be more than enough for you to realize how bullish people are about stocks right know. And guess what – people are always like that when the market is nearing a major top.  That is why they are disappointed and even panicked, when their expectations are being destroyed by the sudden crash, which usually follows that kind of optimism.

 

Could you have been prepared for the recent pull-back in the Dow Jones Industrials? Yes you could, if you have been following us on June 15th, when we showed you the following chart in an article, called “Dow Jones not as healthy as it seems”.
dow jones daily
As you can see, we were expecting a decline in wave 4 of this ending diagonal, sooner or later. It took a while, but eventually, the recent 714-point drop-off seems to be exactly what we needed. An updated chart of DJIA is given below.
dow jones updated
Indeed, we assume wave 5 of (5) to lead Dow Jones to new highs and the bulls’ perseverance to be rewarded again. However, if this is the correct count, the expected downtrend after the top of wave (5) could make them pay for their lack of respect to the bears.



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