Stock market Outlook: As it is above, so it is below!

I have posted 2 interesting charts of the Dow. One covers the past 6 month period and the other the past 30 years. The patterns are very similar. They both form Head and Shoulder patterns which I like to call "W" patterns for short. Focusing on the 6 month chart first, you can see I have drawn a red line connecting the bottoms of the "W". You will notice that this red line slants down. This indicates that the market will most likely head lower. Well it has in the case of the 6 month chart as the market closed down below their support levels the past 2 days, shaking up some long in the market and exciting those short in the market. But one thing I have learned is not to bet that this trend will continue. There is too little data at this point to know if the market will continue down or simply reverse just looking at the pattern so far. However, if you use this data in conjunction with a broader view much can be revealed.

Let's now take a look at the 30 year chart above. It too has formed a "W" pattern, although the right side of the "W" pattern is still forming. You will notice that the granularity is not as distinct when you look at this time period. Moves of 100 to 200 points get blurred and it is difficult to predict immediate short term moves. However, longer term moves become apparent. In this case the red line drawn shows a slanting downward pattern suggesting a much lower low is what we are in store for. In fact the second bottom leg of the "W" pattern was at 6,400, if you remember. You can see the implication is that we will go below this level when we go down. This is why I have been shouting and trying to get people's attention to this. These patterns are very predictable and to ignore them and their meaning is to do so at your peril.

Many have the view that charts don't mean anything and can't really predict future direction. That is not true as I have shown countless times here. Just read my previous posts for the past 3 months when I look and analyze daily chart patterns or when I predict drops in coming weeks and months. This is not because I am psychic or something. It is because market action is based upon actions and reactions of human beings. Human beings are for the most part predictable as their social moods tell us the probability of certain things happening again.

Have you ever heard the phrase, "history is about to repeat itself"? Or the phrase, "will they ever learn?" This is being played out today in the actions in the Eurozone in dealing with the sovereign debt issues and their stock markets as well as here in the U.S., where Fed Chariman Bernanke and Treasury Secretary Geithner are pleading with the Europeans not to take the austerity path, as the recovery is still fragile. Bernanke and Geithner worry about Deflation while Europeans are worrying about Inflation.

The history of the Great Depression was studied by Bernanke and he is trying to avoid making the same mistakes which were made back then; belt tightening. That is what happened to continue the length of the Great Depression and is the main reason why he and Geithner have advised for more Stimulus. And because we are human beings and play politics, the Party out of office, the Republicans, are driving like the Europeans for austerity, belt tightening and cutting the debt at a time when the experts believe this will throw us not only back into a double-dip recession but another Great Depression. You see humans are predictable as the need for winning is strong in us as is the desire Not to lose. Both positions are equally challenging positions in the face of a crisis and bring out the worst in us all.

So my friends as we enter this long weekend to celebrate our Independence as a Country, we will never be independent of our emotions in crisis as we are human and often do repeat history unfortunately. However, knowing this should get you to at least give this viewpoint some consideration, as your financial well being hangs in the balance. Good luck with your choice. I tell you these things to try to wake you up, in case you are sleeping at the switch. I have nothing to gain or lose in your choice. I trust the charts. Happy July 4th and your Independence!