Seekers of enlightenment often focus on living in the present rather than thinking about the past or future. The Chinese word "tao," pronounced "dao," signifies the "way" or "path" to enlightenment. It seems to imply that enlightenment is about the journey rather than the destination. 

This monthly bar chart of the Dow Jones Industrial Average  has moved to a crucial crossroad after a very long journey. While it is too early to declare that this index has put in its final high, there are some alarming comparisons to the last two major peaks, and a jaw-dropping comparison to one of them. Let's leave our biases aside for a few moments and consider the enlightenment that an objective perspective might bring: the Tao of the Dow. 

Click here to see a larger version of the following chart in a new window.

Let's begin by observing the corresponding pairs of pink and red ovals that appear in the price pane at the top and the stochastics pane at the bottom. These highlight the rare occurrences of what we call bearish divergence sell signals. These happen when their are two peaks in the stock's price with the second peak being higher than the first. At the same time, the second peak in the corresponding pair of stochastics readings is lower than the first (with the stochastics remaining above the 90% threshold that indicates stocks are extremely overbought). 

In 1999 and 2000 there was such a signal, with the two peaks occurring about five months apart. In the ensuing two and a half years, the Dow fell 38%. Then in 2007 there was another occurrence, with the peaks three months apart. In the next 1.4 years, the Dow fell 55%.

Well, we just saw a third occurrence of such a bearish divergence sell signal. Last week, there was a peak that follows the peak of May 2015. That is the longest bearish divergence sell signal of the series.

There's something even more alarming. Note the black ovals that encircle the second red ovals in 1999/2000 and now. These mark the two times that the bearish divergence sell signal has appeared at the same time that the Dow, S&P 500  and Nasdaq Composite  reached all-time highs on the same day.

Prices can continue to rise a bit further, toward 19,000, and remain within the bright red oval, as well as rise to test the underside of the bold, black trend line that is the upper jaw line of what we call a Jaws of Death pattern (named by Robert McHugh). As McHugh explained, once the pattern matures, the jaws snap shut in a catastrophic decline, and the upper jaw line crashes to meet the bottom jaw line. If that happens in the next few years, the projection for the Dow would be less than 6000. 

Given this ominous technical picture, the risk-reward equation has become dangerously skewed toward the risk side. 

Our decision support engine (DSE), which filters stocks, indices, asset sectors, commodities and currencies in real time in our live-market Trading Room, just flashed a red-flag warning to our members with the following parameters: Sell one-third of stock exposure if the Dow breaches 18,250, another one-third on a break below 17,725 and the final one-third on a move below 17,050.

We've shown a pink support band surrounding 15,000 as the line in the sand for the bulls if the May 2015 highs are broken. This band has held three tests in the past year, and the new highs have arrived. The next time prices move to that support zone, it likely will break. When it fails, selling is likely to arrive that initially looks like what 2008's price action looked like. It could become even worse, however, as the leverage in the system now dwarfs that of 2007.

If you are concerned more with the return of your capital than the return on your capital, then right now -- with the Dow near the upper jaw line, another bearish divergence sell signal and the crowd aligned in bullish certainty -- is the time to take objective action, regardless of what you think is going to happen.

For updates on these dynamic, as well as other, opportunities, try our DSE Alerts service for free for a couple of weeks, or contract us at support@dsetrading.com

This article is commentary by an independent contributor. At the time of publication, the author was building short exposure to the Russell 2000 stock index using the Direxion Daily Small Cap Bear 3X Shares (TZA).