Investor George Soros says we're headed for a "crisis" -- just like 2008. Well, he might be right.

The overwhelming weakness in equity markets this week is giving rise to uncertainty regarding the rest of the year's trade. The great part about financial markets is that the history of price action now dates back over 100 years. With such vast quantities of data, one can go back and observe what may be on the horizon. The Dow Jones Industrial Average is pictured below in both charts.

It didn't take that much digging to find a similar pattern in markets to what we are seeing today. Back in 2007 and 2008, ironically the last time the Federal Reserve was hiking rates, the market began to form a bearish head and shoulders pattern. The pattern took a little less than a year to complete, and began breaking down heavily in early 2008.

The initial reaction lower in 2008 brought the market down by close to 15% in a matter of weeks, leading to a strong rebound higher from late January until May. In May, more selling pressure commenced, and when it was all said and done, the market had collapsed by nearly 55% from its 2007 highs to its 2009 lows. The point of this is that a bear market does not happen overnight, rather it can last many months or even years.

Data provided by Tradingview.com

Looking at the current Dow Industrials chart, a topping pattern also looks to be developing. While we have not breached the August 2014 lows of 15,400, the market looks to be favoring selling currently. If we do get drastic spikes lower, pullbacks higher could be as much as 10% or more in some cases, but these are natural occurrences in a true bear market. The tide of the market is changing, and considering the geopolitical risks, as well as this being an election year in the U.S., investors could favor selling in the coming months.

Data provided by Tradingview.com

 

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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