Stock markets worldwide ready to crash after ‘shoulder head shoulder’ formations - how far can Dow drop in a day?
Peter Oberois
Mar. 5, 2007

The technical formation resembles previous start of major bear markets. The shoulder head shoulder formation was complete last weak and the stock markets including Dow and Nasdaq is falling off the cliff. The sentiment has just started to turn bearish – a very early stage of long-term bear market.

The biggest question is how far can Dow drop in a day?

There are circuit breakers that will trigger in after a massive drop of 500 points, for example. But that will just suspend the trading, will not end the bear wave down. The fact is Dow or Nasdaq can easily gap open 5% or more low. That can continue as a ‘limit down’ syndrome for many days. Simply put, investors will get an opportunity to get out of stocks may be after initial 25% drop in the market and after 5 trading days.

The brokers are after the hedge funds. They are refusing to answer mutual fund calls. In 1987, the brokers refused answer phones as Dow plunged 500 points or close to 25% in a single day.

The Dow and Nasdaq can go down sharply here. The Nikkei is down more than 500 points or 3%. That can spill over other markets. The slow down in US and inflation in India and China are real. The fundamentals and technical for Nasdaq and Dow were the worst ever.

Investors may be making a serious mistake. If Dow and Nasdaq gaps opens way lower and goes limit down for a whole week or more, you can sell only at the local bottom, say, 30% below where the market is today. It will take at least 30 years to recover that 30%. Those who got trapped in 1929 crash could finally recover their losses in the market after a decade or more. Parabolic tops take many years to complete the bear market and start a new bull market.

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