DOW crash part 2 - the Nikkei of 1989

On the left hand, the weekly Nikkei chart of 1989, which is very close to the 1929 situation of the DOW. It happened basically again in 3 months and we dropped from 39000 to 27000 or 31%, which is a far lesser magnitude and the biggest drop below the weekly Bollinger - never exceeded 10% basically. We had a counterwave rally of 5500 points, which is 20% up or almost a 50% retracement before the next big wave brought it from 33000 to 20000.

Most important for us again, every week with a steep drop below the weekly Bollinger was followed by a recovery back into the Bollinger.

What can we learn from history? Two things: (in both instances, were on similar fundamental background the financial system was completely wrecked and we will have the same long term effects - but that's a different topic.)

1. The Bollinger has a evidence of good support if markets drop below to a given degree and usually short-term recovers the lost ground.
2. When you put it into an overall context of price and time magnitude, you can handle the panic of the market without falling in one yourself.

I know it might be unpleasant if you have already long positions to take another 5% hit, since everything around you might bring you into a panic mode yourself. But there is no need when you know yourself and how you can handle it. This market will produce very shortly great opportunities to make some money if you are not on the short side already. When it's time to start covering positions the next days - the ones not long can enter longs the next days. We need to follow closely the price moves and very likely it will be either the coming Monday/Tuesday for a wave 4 move or in 3 weeks with the end of wave 5 down.

The financials look still very vulnerable and the BKX has to go below the 46.50 lows but might initially snap higher after testing that level. Also, can we expect some G7 actions this weekend (another rate cut )- that's so useless that these guys only make mini-steps and are too late most of the time. I have to add that it is bewildering to me that the IMF comes out with such studies in these fragile markets and that S&P comes out with a negative rating comment now about GM is freaking useless. They rather should have done that months ago since the fact that GM is almost bankrupt is nothing new and they should have never done their phony ratings about mortgage products in the first place.