Can Dow Jones Industrial Average crash in April?
Sam Adelton
Mar. 2, 2007

The investment gurus are closely watching the pattern of movements in Dow Jones Industrial Average. It seems Dow resembles the pattern of 1987. But a closer and more analytical move shows there are some significant differences.

In 1987 Dow crashed after the recently selected Fed Chairman Mr. Greenspan hiked rate to control the uncontrollable bubble formation in the economy and the stock market. Interestingly, on Monday February 26, 2007, Dow dropped400+ points on Mr. Greenspan’s comments about a possible recession this year.

The question is can Dow crash in April? April is the worst month for stocks. After the widow dressing is over, the major financial institutions sell the under performing stocks. The market gets occasionally depressed. It happens again after September in October. Between April and October there is usually a summer rally.

The chances of a stock market melt down is 50%. Let us explain why. The fundamentals and tracking analytics say there is still some liquidity left in the system. Unlike in 1987, the rate hikes were made slowly. The rate of the rate hike by Fed, not just the extent of rate hike, affects the stock market. As deflation is in control of the economy now, the possibility of real meltdown over a short period of time is non-existent.

However there are two other equally compelling reasons that call for real caution. The biggest problem is the computer driven trading systems and lack of specialists in the exchanges. In 1987, brokers refused to pick up the phones as sell orders flooded the market. This time computer can lag behind and just refuse or be overwhelmed for execution of sell orders. The circuit breakers may work but the sell programs can continue creating devastation for quite a few days or even weeks. The second reason is the fact stock index futures and ETFs are primarily held today by the hedge funds that promise relatively high return. The hedge funds can decide to race for an ecit.

Simply put, fundamentals do not support a crash but technical aspects of trading does create a possibility of a massive crash in April.

Can Dow Jones Industrial Average crash in April?
Sam Adelton
The investment gurus are closely watching the pattern of movements in Dow Jones Industrial Average. It seems Dow resembles the pattern of 1987. But a closer and more analytical look shows there are some significant differences.
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