The Best Trading Environment In Many Years (and What Will Follow Last Week’s Dow Jones Crash)

By Mark Shawzin03/18/2020

What a difference a week (or two) makes!

The Dow Jones Industrials (DJIA) stock index has dropped 30 31% from peak to trough – that’s 29,600 to about 20,400 (I’ll analyze that chart later in this report). We’re seeing unprecedented volatility across all markets too, not just stocks. Gold, oil, and FX have all been undergoing historic gyrations.

With all the unknowns surrounding the health crisis — as well as the emerging financial crisis — it’s easy to think we should pull back and stay out.

But it’s my contention that these markets offer unprecedented opportunity right now.

As proof, here are the recent trades I closed out last week for a huge 3,031 pips in profit.

We were long GBPNZD (the British pound against the New Zealand dollar) which collected 1800 pips between two different positions in that pair.

We were also short USDJPY (the U.S. dollar against the Japanese yen) which added to the rest of the 3,013 pip total. These are trades I’d been holding for only a couple of weeks too.

So what does that kind of profit mean? For every $1,000 invested you could have pocketed about $30,000.

And that’s why I believe we’re currently in one of the greatest moneymaking environments I’ve seen.

If you know what you’re doing and you’re armed with the right knowledge, you can make a fortune in these markets.

Now of course, I have to make a standard disclaimer that past performance is not indicative of future results. There is a tremendous amount of risk in the markets right now. I’m not trying to discount that.

I’m just saying that when you’re armed with the right knowledge you can do very well, so please understand this balance.

Now let’s get into this week’s analysis. Where are the next big opportunities?

I’m going to start with the stock market because of the incredible, historic moves we’ve seen lately. Last Thursday the DJIA suffered its biggest point loss for one day. And then on Friday it enjoyed the biggest point gain in any day.

Overall, it’s not a pretty picture though. I’ve been watching the U.S. stock market grow to the sky over these last few years and yet the laws of physics are such that trees don’t grow the sky. Nothing continues forever.

But so many participants don’t seem to recognize that. Everybody was positioned on the long side and making money … for a decade. There are fund managers in New York in their 20s and 30s who have never seen a real bear market. Plus a lot of Wall Street now uses mechanized trading with algorithms that just look at the price, chase offers and levels and behave in a very rigid fashion.

These algorithms don’t know book value. They don’t know the meaning of oversold. They just step on a trade one way or another and this is at least part of the reason why we’re seeing these giant extremes.

To my mind, this always presented a great danger. There’s been incredible complacency as we’ve watched the market endlessly go up and up every week and every month.

In the past, I’ve warned of a host of underlying problems in the stock market. And they all boil down to one word: debt.

We have an incredible amassing of debt.  In fact, we have the biggest global debt to GDP ratio ever. The U.S. is $23 trillion in debt and has a national deficit of over $1 trillion adding to that debt.

We have corporations that are $12 trillion in debt. There’s a whole host of BBB- companies with junk bond debt that are in serious trouble too. And once they can’t pay their bills, there’s not going to be enough chairs when the music stops.

Warren Buffett once called these debt bombs weapons of mass destruction. This was several years ago, so it’s taken a while to play out. But I think we’re now seeing a litany of sins coming to the front. This selloff will be attributed to the coronavirus, but to my mind this was going to happen one way or another.

Now that I’ve got that off my chest, let’s return to that DJIA chart:

So what’s happening next with the DJIA? Patterns are invaluable to help us figure out the most likely path. I draw my structure around the market and then I observe the price movements within the structure.

What we’re seeing with the DJIA is an emerging megaphone top, which is also called a broadening top.

Regardless of the name, the word you want to be focused on here is the word “top”.

Now this pattern is quite symmetrical, which means that it can be a continuity pattern or reversal pattern. If in fact the market gets some traction and starts rising again, this megaphone top will in fact be a continuity pattern within the context of the long-term bull market.

But if the market can’t rise significantly, then it’s a reversal. At the moment, I’m in the reversal camp. What will confirm that suspicion is the DJIA going through the bottom of the downward trendline and establish new lows. If the market hits 20,000 that should open up a huge move even farther down to 15,000.

Now of course this is a huge prediction. It’s obviously a massive decline from the peak.

But history does repeat, as I’ll soon show you.

For a longer term view, here’s the DJIA on a monthly timeframe where each one of these price bars represents one month in time.

Just as we saw on the weekly chart, there’s an emerging megaphone top price pattern.

Even though I’ve been trading for decades, it never ceases to amaze me how these chart patterns come together irrespective of the environment.

Yes, we have an outlier coronavirus event. Nobody could have seen this coming. But in the meantime, this chart pattern has been tracing out for months and years. The price action within the confines of this pattern was established in late 2017 and early 2018. It’s taken two years, but price action is again ahead of events.

So with a megaphone top in place, it’s likely to be a reversal pattern. That means the market will reverse from its prior direction. That doesn’t mean you should just go out and short it.

Remember, these are monthly bars and this has taken a long time to come together. We’ll still have a lot of volatility to come.

The key level to watch is last week’s price level at 20,400. If the DJIA comes back and retests this level that will confirm the pattern and point the way to the 14,000 – 15,000 level.

Now of course it seems astounding that this could happen. But that’s why examining these patterns on a historic basis is invaluable.

Here’s a chart of the DJIA during the 1928 – 1929 timeframe.

As you can see, the DJIA traced out almost the exact megaphone top price pattern that we’re seeing today.

There’s an A – B – C – D – E wave apparent in this chart. The other key point is that the DJIA bounced off the lower line and then dropped to retest it. That low couldn’t hold and the total move from peak to trough was 48.5%.

If you carry forward that percentage to today’s chart, that suggests a 15,000 DJIA level.

Now I’m not saying this will definitely happen. After all, this pattern could get busted by subsequent price action if the DJIA instead attacks the upper megaphone top line rather than the bottom one.

But to my mind, being forewarned is forearmed and it’s very useful to understand how these patterns may play out.

Let’s look again at today’s DJIA at the monthly level:

Just like in the 1929 chart, there’s an identical A – B – C – D – E wave within this broadening symmetrical triangle (megaphone top) price pattern.

Note that the bottom of the megaphone also coincides with the long-term trendline.

This is the best trading environment I have seen for many decades, possibly ever.

Last week, my predictions bagged over 3000 pips (generating over $2m of profit) and even more crashes and opportunities are presenting themselves this week for smart traders to “gobble up”

In this week’s video report, I share what’s going to happen next with the Dow Jones, Gold and the current ‘Safe Haven’ of trading.

A big seven days of trading ahead and I’m excited for everybody who follows what I have to say.

I share:

  • Why we’re seeing unprecedented volatility across all markets and how you can read between the chaos to objectively find the big opportunities in the markets
  • My “trade what you see, not what you thinkapproach (and why far too many traders get caught up in the emotion of news, world event and politics)
  • How I collectively bagged over 3000 pips over the past seven days (generating me over $2m) – a full breakdown of exactly what happened and the long-positons I had in place to make this happen (full walkthrough start at 3:39)
  • Why this is the most exciting trading market that I have ever seen (and how you can “make a killing” if you’re armed with the right knowledge).
  • Why ‘Warren Buffet’ subtly predicted this crash several years ago, and what’s going to happen after the biggest crash of the decade (watch from 10:05)
  • My prediction on where the Dow Jones is going to go next, and the patterns that I’m waiting for before knowing whether this market will spike or crash even further (great teaching moment)
  • The huge Dow Jones crash from 1928 that had a set-up that is practically identical to the current markets (try to “spot the difference”) – starts at 16:21
  • The “bearish diversion” between GOLD and SILVER, and why I believe Silver is in a one-way direction for some time based on the long-term charts
  • Why I believe GOLD could significantly crash … BUT the daily price action that I’m waiting for before getting in on this trade (watch from 23:11)
  • Why the ‘Safe Haven’ for traders is not GOLD, but instead a safe currency that is looking “solid” – I share all at 26:04
  • My advice to you on the USDJPY following last week’s key reversal, and what you should be looking for before knowing who will win the “tug of war”
  • Plus much more

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Hi, I'm Mark Shawzin. After working on Wall Street as a trader for 23 years, and managing private client accounts for the past 13 years, I've put together my 21 most powerful Forex strategies.

21 Forex Power Strategies by Former Merrill Lynch Trader

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