5/8/2018 Candlesticks Foretold The “Crash of 1987” And The “Flash Crash of 2010”

There are several commonalities between the “Crash of 1987” and the “Flash Crash of 2010.” They’re not “twins,” but they surely are
“brothers under the skin.”

One of their commonalities is that, at the time, they were both frequently described as “coming out of the blue.” However, such is not
the case; there was plenty of advance warning of the impending arrival of each of them.

Another commonality is that, in each instance, Candlestick reversal warning patterns provided advance notice of a probable major
price decline.

The Crash Of 1987

In 1987, the price of the Dow Industrials had been on a slow but persistent rise since May. Prices peaked in August, then moved
sideways to slightly Down, before moving Up again to lower peaks on Friday, October 2, and Monday, October 5.

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Those who are familiar with the “Elliott Wave Principle” will recognize a peak in a “fifth wave” (marked “5” on the above chart) on
August 25, followed by a “Wave 1 Down,” and then an upside partial correction of that “Wave 1 Down” by a three-wave “a-b-c” move
that culminated as the top of the “c” wave of the a-b-c partial correction and also as the top of “Wave 2 Up.”

The significance of that point of termination is that prices closed precisely at the 61.8% retracement of “Wave 1 Down.” This is a
magic number in the mind of an Elliottician because a 61.8% retracement of a “Wave 1 Down” is a common occurrence and, if prices
stop advancing there and decline meaningfully thereafter, it is understood as being strong evidence that the major underlying trend
has switched from Up to Down.

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5/8/2018 Candlesticks Foretold The “Crash of 1987” And The “Flash Crash of 2010”

(Of course, at the point in development of the pattern when the retracement exactly at the 61.8% level might have been first noticed,
the presumption that an a-b-c correction was developing could be only that – a presumption. Confirmation of it as “real” could only
come later, if at all).

Please notice the two side-by-side “Candlestick” price bars at the 61.8% retracement line on October 2 and 5, because they are very
special. Each of them is a “Doji,” in which the Opening price and the Closing price of each individual Doji are nearly identical.
Therefore, the two of them, together, constitute a “Double Doji.”

Furthermore, the two Doji (together) constitute a “Unique Double Doji,” because their Opening Prices and Closing prices are nearly
identical. The appearance of a “Unique Double Doji” is extremely rare. A viewer who was skilled in “Candlesticks” would have
considered this phenomenon to have very bearish implications.

As we can readily see from the above charts, the warnings of the Elliott Wave pattern and of the “Unique Double Doji” Candlestick
pattern, considered together, resulted in a massive selloff over the next several weeks, which became known as “The Crash of
1987.”

Given that there were ten trading days between the appearance of the second of the two Doji on October 6 and the final selloff on
October 19 – which became known as “Black Monday” – how can it possibly be asserted that this event “came out of nowhere?”

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5/8/2018 Candlesticks Foretold The “Crash of 1987” And The “Flash Crash of 2010”

The fact is, there was ample time to get out of Long positions well before the final denouement on October 19. Even exiting a Long
position on October 16, the Friday before Black Monday, would have prevented a disaster.

An investor who was Long and who understood the implications of the Elliott Wave pattern would have (or should have) exited his
position not later than the seventh day following the second Doji (i.e., October 14), because the Close on that day was below the
Low of corrective wave “b,” which “closed the loop” and thereby confirmed definitively that what had been presumed to be an a-b-c
correction was, in fact, exactly that; and therefore that the major underlying trend had switched from Up to Down.

The charts show that Black Monday did not “come out of nowhere.” The decline into Black Monday was a slow, but accelerating,
glide over a period of nearly two weeks.

The Flash Crash Of 2010

Likewise, the so-called “Flash Crash” of May 6, 2010 was not a “flash” at all. If he knew where to look, the savvy investor had plenty
of advance notice.

Here is a Daily chart of the Dow Industrials for late April to early May 2010:

On April 27 (seven trading days before May 6) a classic Candlestick “Bearish Engulfing Pattern” appeared. This pattern was much
more bearish than most of its kind, in that the “Real Body” (that is, the price distance between the Open and the Close) of the tall
black candle of April 27 “engulfed” the “Real Bodies” of the eleven price bars which preceded it.

This pattern was a very bearish signal, which was accentuated by two additional factors:

1. The price bar which immediately preceded the tall black Candle that end-capped the pattern was a “Doji” that had appeared at
the top of an extended price rise, and…
2. The top of that Doji was exactly at the 61.8% retracement of the decline in the Dow which occurred from its top in October
2007 to its Low in March 2009. Both of these were bearish signals.

Furthermore, another “Bearish Engulfing Pattern” appeared on April 30, and still another on May 4. The “Flash Crash” occurred two
days later, on May 6. The buildup to it had begun seven trading days earlier, with the appearance of the tall black candle which
created the very large “Bearish Engulfing Pattern”.

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On that account alone, what happened on May 6 can also not be viewed as being unforeseeable.

There’s more! Let’s also examine the price pattern that occurred on May 6 itself, the very day of the supposed “Flash Crash,” as
shown in close detail on the 5-minute chart:

Here we see that there was no “lightning bolt out of the blue” that drove the price down in an instant. Rather, the decline was a slow,
but accelerating glide, very similar to the glide as shown on the Daily chart from the formation of the large “Bearish Engulfing
Pattern” onward, and also remarkably similar to the slow, but accelerating, glide which characterized the buildup to the Crash of
1987!

The price patterns bear a close resemblance to each other; the only major difference being time compression, particularly in the case
of the 5-minute chart of the “Flash Crash.”

The “Crash of 1987” and the “Flash Crash of 2010” are “brothers under the skin.”

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