The DJIA fell a little over 90 points today and seems poised to break below 9000 again. A failure at 9000 at the current juncture would be significantly more dangerous than the previous reversal from the psychologically important mark last week. This time, if the Dow drops below 9000 and then below 8900, the first Dow Theory bear market signal will occur since the last major stock market correction (20%+) in 1990 when Iraq invaded Kuwait.

(One might also note that the London FTSE and French CAC also appear ready to fail at psychologically significant thousand marks. The FTSE is trading just under the 6000 mark and the CAC is trading just below 4000.)

On Monday, the Dow Jones Industrial average closed at an all-time high while the Dow Transportation and Utility averages did not.

Or see:

This unconfirmed high in the Industrials sets the stage for a possible Dow Theory sell signal in the near-future. Specifically, a Dow Theory sell signal will occur if, at the same time, the Dow Jones Industrial average closes below 8900, the Transports close below 3450 (Transports closed below 3400 today) and the Utilities close below 276. Should such a bear market signal occur, it will be the first one since the last major correction (20% or more) in 1990 which occurred when Iraq invaded Kuwait.

An unconfirmed top in the Industrials was the last ingredient I was looking for for a top in the bull market that has been underway since January of 1991 (according to Dow Theory, that's when the current bull market began, i.e., that's when the last Dow Theory buy signal was generated.)

That the last Dow Theory bear market and bull market signals occurred with Iraq's invasion of Kuwait and the West's success in the Gulf War, respectively, might tie-in with how the next bear market is going to unfold.

As I explained in previous articles, the stock market tends to sharply reverse upon reaching psychologically important thousand marks. Furthermore, these reversals usually involve negative historical shocks.

For instance, in 1990, just prior to that year's Dow Theory bear market signal, the DJIA reached an unconfirmed high at 2999.75 (closed there two days in a row in mid-July of 1990). Then, after the stock market reversed, Iraq invaded Kuwait and a negative historical shock occurred that drove oil prices higher, pushed the world economy into a recession and precipitated a major sell-off on Wall Street.

(For other examples of this "psychological barrier" phenomenon, see the graphs linked below and read my recent article: "Dow 9000 & Market Crash, War?" or "Dow 9000 & The Shock?".)

Other examples:

The fact that a Dow Theory sell signal will be generated when the Dow Industrials fall below 8900 suggests that, with the Dow's next drop below the psychologically important 9000 mark, the biggest stock market decline at least since 1990 is going to occur. The fact that, with a PE over 23 and dividend yield near 1.5% on the DJIA, the stock market is the most over-valued ever indicates that the approaching stock market decline will be even larger than the 20% correction that occurred into the third quarter of 1990. (With regard to this, one should read the alarming article by Peter Eliades in the most recent issue of Barron's.)

What's really frightening is that we might have just passed an Elliott Wave "Grand Supercycle" peak as indicated by fractal patterns in the stock market.

If this is so, then we could be looking at the worst stock market decline in history in the weeks, months, years and even decades to come. Indeed, Robert Prechter, the "Elliott Wave Theorist", believes that the Dow could eventually fall to 400 (that's with only TWO zeros) in the context of the approaching Grand Supercycle bear market.

What could cause a huge decline with a reversal from Dow 9000 and the next Dow Theory bear market signal?

As I've mentioned in the past, while an economic depression precipitated by the worsening Asian financial crisis is one possibility, the odds are that a decline on the scale of a Grand Supercycle bear market would involve a far more disasterous historical shock: World War Three.

Where would a third world war come from at this stage? As I have been explaining, a likely source of a global conflict in the near- future is the Middle East and Iraq in particularly- the same place that precipitated the last bear market in 1990. Indeed, the odds are that the Persian Gulf crisis and war in 1990 and 1991 were part of a strategic deception setting the stage for an ultimate upset of Western expectations and the ultimate bear market.

Hopefully, the approaching stock market reversal is not going to be the "Big One", but it is a danger that should be considered. Baghdad's recent threat of "grave consequences" for the West because of continuing sanctions against Iraq could very well be legitimate.

Meanwhile, one should also keep an eye on Kosovo, another flashpoint for world war three. Asia's worsening financial crisis bears watching as well. The latter may very well be amplified to a worldwide financial panic by an outbreak of war in other parts of the world. Finally, domestic political turmoil and the impeachment of President Clinton is possible with the approaching bear market.

----------------------------------------------------------------------
                           RELATED ARTICLES
----------------------------------------------------------------------

                "Iraq warns UN of `grave consequences'"
                  Friday May 1, 2:03 pm Eastern Time 

BAGHDAD,  May 1 (Reuters) - Iraq warned the U.N.  Security Council  on 
Friday  that  prolonging  sweeping  sanctions  against it will lead to 
``grave consequences.'' 

``The absence of a bare minimum result for the Iraqi people in lifting 
sanctions,  in spite of the passage of eight years and  the  sacrifies 
made  in  cooperating  with  the  Security  Council  and  the  Special 
Commission,   will  lead  to  grave  consequences,''   the   political 
leadership said in an open letter to the Security Council.  

BAGHDAD,  May  1 (Reuters) - Iraq warned the U.N.  Security Council on 
Friday that prolonging sweeping sanctions  against  it  will  lead  to 
``grave consequences.'' 

``The absence of a bare minimum result for the Iraqi people in lifting 
sanctions,  in  spite  of the passage of eight years and the sacrifies 
made  in  cooperating  with  the  Security  Council  and  the  Special 
Commission,   will   lead   to  grave  consequences,''  the  political 
leadership said in an open letter to the Security Council.  

Sanctions imposed on Iraq since  its  1990  invasion  of  Kuwait  were 
prolonged  on  Monday  after  Richard  Butler,  head  of  the  special 
commission,  on  Iraqi  weaponry,   told  the  Security  Council  that 
virtually  no  progress was made in arms inspections over the past six 
months.  

Friday's Iraqi statement was issued  after  a  joint  meeting  of  the 
ruling  Revolutionary  Command  Council and the Baath Party leadership 
headed by President Saddam Hussein.  

``Our moral constitutional and humanitarian  responsibilities...  call 
us  to  wait  to  see  how  the  Security  Council will act after this 
letter,'' it said.  

``This state of affairs is a shameful one.  It forces us to  stick  to 
our rights, to the rightful way, and to the great jihad for the rights 
of our people, nation, and humanity.'' 

Sanctions  imposed  on  Iraq  since  its  1990 invasion of Kuwait were 
prolonged  on  Monday  after  Richard  Butler,  head  of  the  special 
commission,   on  Iraqi  weaponry,  told  the  Security  Council  that 
virtually no progress was made in arms inspections over the  past  six 
months.  

Friday's  Iraqi  statement  was  issued  after  a joint meeting of the 
ruling Revolutionary Command Council and the  Baath  Party  leadership 
headed by President Saddam Hussein.  

``Our  moral constitutional and humanitarian responsibilities...  call 
us to wait to see  how  the  Security  Council  will  act  after  this 
letter,'' it said.  

``This  state  of affairs is a shameful one.  It forces us to stick to 
our rights, to the rightful way, and to the great jihad for the rights 
of our people, nation, and humanity.'' 

----------------------------------------------------------------------

            "Albania warns of war as Kosovo fighting rages"
                       Monday May 4 5:00 PM EDT 

JUNIK,  Serbia (Reuters) - Fighting raged for a second day  in  Kosovo 
Monday as a senior official from neighboring Albania warned that full-
scale war could erupt in the restive Serbian province.  

Serbian  police  said  they  had  encircled  up to 200 ethnic Albanian 
separatist guerrillas in Ponosevac after the  Kosovo  Liberation  Army 
(KLA) attacked police in the southwest Kosovo village on Sunday.  

Gun  and  mortar  fire rang around Ponosevac about 6 miles east of the 
Albanian border.  

Serb officials said the guerrillas were trying to  establish  a  no-go 
zone  along  the  border,  which  is  marked by towering,  snow-capped 
mountains.  

Reporters who reached the nearby village of Junik were turned back  by 
heavily  armed  Serb police who said Albanian "terrorists" were firing 
on any vehicle trying to reach Ponosevac.  

"There are many dead and wounded (ethnic Albanians) in  the  Ponosevac 
area  but  we  have  no  way  to reach them because the terrorists are 
shooting at everything and everybody," a Serbian police  officer  said 
at a checkpoint near Junik.  

Serbia  abolished Kosovo's autonomy in 1989,  prompting the province's 
ethnic Albanians to set up their own parallel institutions.  Some  150 
people  have  been  killed in Kosovo since February in clashes between 
Albanian separatists and Serbian security forces.  

In an interview published on Monday,  Albanian Foreign Minister Paskal 
Milo warned that war could easily break out in Kosovo.  

"It  is  the  first  time in 50 years that we have such tension on our 
border with Serbia," Milo told the Athens-based Vradyni newspaper. "It 
is first time the Kosovo Albanians are so determined and organized  to 
claim their rights and take this matter to the end." 

About  90  percent of Kosovo's 1.8 million people are ethnic Albanians 
and most want independence.  Serbia says it is only willing to discuss 
autonomy.  

Albanian Prime Minister Fatos Nano has urged the North Atlantic Treaty 
Organization to send  forces  to  prevent  the  Kosovo  conflict  from 
spilling across the border.  

In Madrid,  NATO Secretary-General Javier Solana said the alliance was 
closely following  the  crisis,  but  had  made  no  decision  on  the 
deployment of troops to the area.  

NATO  would  continue  to  support the small,  mixed military-civilian 
teams of experts the alliance sent to Albania to help  Tirana  improve 
border patrols and other military operations, he said.  

"We  want  to  keep working to stabilize the region in the deepest way 
possible," Solana said without elaborating.  

Albania has put its armed  forces  on  alert  along  its  border  with 
Kosovo.  A  government  official said the Tirana government planned to 
create a civilian volunteer force to curb arms  trafficking  and  help 
refugees in the northern areas bordering the Serbian province.  

The Democratic League of Kosovo (LDK), which advocates independence by 
nonviolent means,  said the fighting around Ponosevac was an effort by 
Serbian police to clear ethnic Albanians  from  the  strategic  border 
area.  

"The continuing attacks by Serbian forces on villages around Ponosevac 
indicate  that Belgrade has decided to realize their black plan to rid 
the area of Albanians,"  Naim  Jerliu,  an  LDK  vice-president,  told 
Reuters in the provincial capital Pristina.  

"This  is  the  beginning  of  massive  attacks  against  the Albanian 
majority across Kosovo,  and the  international  community  must  move 
urgently  to prevent these acts or face the very real possibility of a 
conflict involving the entire region." 

At a meeting of the big power Contact Group in  Rome  last  week,  the 
United States and its European allies -- with the notable exception of 
Russia -- decided to freeze Yugoslavia's assets abroad.  

They  also  threatened further moves against Belgrade unless there was 
progress by May 9 on opening autonomy talks with leaders  of  Kosovo's 
ethnic Albanians.  

But the West's attempts to resolve the crisis has come under criticism 
from some ethnic Albanian leaders.  

Bujar  Bukoshi,  who went into exile in Germany in 1992 after becoming 
prime minister of the self-styled Kosovo republic,  told  an  Albanian 
magazine  that  Kosovo  politicians  were  naive to expect the West to 
intervene decisively.  

"The West is not a monolith," Bukoshi told Klan magazine from  London. 
"Some support us more, some less. America seems to support us more." 

Bukoshi  said  the  situation in Kosovo was not yet "catastrophic" but 
warned that the outlook was poor given that Serbia was not  interested 
in defusing the tension.  

He reiterated that his LDK had no ties with the separatist guerrillas.  

"Our  priority  is  to  avoid a conflict but we should not be blind to 
what is happening in front of us," he said.  

"The KLA is a challenge to Kosovo's society and...(we) should confront 
it and try to overcome it with political and other actions." 

----------------------------------------------------------------------

             "Riots in Indonesia city, but reforms remain"
                       Tuesday May 5 5:24 PM EDT 

                           By Ian MacKenzie 

JAKARTA (Reuters) - Riots sparked by fuel  price  hikes  rocked  Medan 
Tuesday,  and  thousands  of  students  and workers protested in other 
cities blaming President Suharto for Indonesia's economic crisis.  

But Suharto pledged anew to push forward economic reforms, despite the 
rising opposition to his 32-year-old rule.  

Witnesses reported that police shot and wounded two rioters in  Medan, 
capital  of  North  Sumatra  and  a key commodities center,  when mobs 
looted shops and set vehicles ablaze.  

In  Jakarta,  Indonesia's  capital,   at  least  seven  students  were 
seriously  wounded  by  rubber  bullets  and  taken  to  a  clinic for 
treatment as riot police forced  anti-government  protesters  off  the 
streets.  Altogether 25 students were hit by rubber bullets.  

Demonstrations  were  also  reported  Tuesday -- the day after a stern 
armed forces warning against violence in the streets --  in  the  West 
Java city of Bandung, in Yogyakarta in Central Java and in Indonesia's 
second city, Surabaya, in East Java.  

Witnesses  said at least five students were injured in a clash between 
riot police and about 500 students  trying  to  force  their  way  off 
Bandung's Parahyangan University into the streets.  

In  Yogyakarta,   residents  said  about  10,000  students  from  four 
universities  demonstrated  peacefully.   Thousands  of  students  and 
workers  staged  protests  in  Surabaya  but  there  were no immediate 
reports of trouble.  

An increase of between 25 and 71 percent in fuel prices that came into 
force at  midnight  Monday  set  off  the  renewed  demonstrations  by 
students  in  several  university  centers,  with  workers and jobless 
laborers joining in.  

The price increases were part of a package of reforms agreed with  the 
International Monetary Fund,  which Monday approved a further balance-
of-payments loan of nearly $1.0 billion for Indonesia.  

Senior IMF adviser Prabhakar Narvekar quoted Suharto  as  telling  him 
during  a  40-minute meeting Tuesday that the decision to raise prices 
had been a difficult one.  

But Narvekar said the 76-year-old president,  re-elected to a  seventh 
five-year  term  in  office  in  March,  had assured him "he was fully 
behind the (reform) program and there will be an implementing of it." 

Indonesia turned to the IMF last October after  the  collapse  of  the 
rupiah  currency plunged the economy into its worst crisis in decades, 
with prices and unemployment shooting up,  most companies thrown  into 
technical bankruptcy and trade at a virtual halt.  

Students  started demonstrating at campuses around the country in mid-
February,  demanding that prices be brought down and Suharto  quit  to 
take responsibility for the crisis.  

IMF  Managing Director Michel Camdessus said in Melbourne,  Australia, 
Tuesday he  was  concerned  about  the  social  impact  of  reform  on 
Indonesia's 200 million people.  

The  disturbances  affected  Indonesian  financial  markets,  with the 
unrest offsetting the good news of the IMF loan  to  keep  the  rupiah 
around  8,000  to  the dollar.  Its collapse from the 2,400 level last 
July triggered the economic crisis.  

The stock market composite index fell 2.43 percent on the day to a 13-
week low of 435.16 points.  

"The risk has become more widespread and more intense in nature," said 
Vincent Low,  fixed-income strategist of Merrill Lynch  in  Singapore. 
"That would be a definite source of concern for investors." 

"People  would  like to take a wait-and-see attitude and see how these 
sort of social problems are addressed,  whether they can be  contained 
before rolling over their trades," he said.  

Commodity  trading  was  quiet in Indonesia Tuesday as a result of the 
unrest,  but officials at Medan's Balawan port said it was  unaffected 
by the city riots.  

Political  and diplomatic analysts said that despite the extent of the 
anti-government demonstrations,  there appeared to  be  little  strong 
coordination  between  the  various university campuses,  and no major 
opposition leader capable of uniting the country had emerged.  

The  powerful  armed  forces  (ABRI)  have  basically  tolerated   the 
demonstrations so long as students remained on their campuses.  

ABRI  chief General Wiranto Monday issued a stern warning against what 
he called anarchy on the streets and said  forceful  action  would  be 
taken if necessary.  

One  piece  of good economic news was an increase in Indonesia's trade 
surplus to $1.7 billion in February from  $1.6  billion  the  previous 
month.  

The  country's  top economics minister,  Ginandjar Kartasasmita,  said 
disbursement of the IMF's $1 billion loan on Monday set the scene  for 
an inflow of $7.0 billion from the IMF,  World Bank, Asian Development 
Bank, Japan, Australia and Malaysia over the next three months.  

----------------------------------------------------------------------
                      ARTICLES FOR FAIR USE ONLY 
----------------------------------------------------------------------