Alert: Dow Tests March Lows Today

Jun 24, 2008: 10:25 AM CST

The Dow Jones Industrial Average tested the March closing low today, with a large, sudden plunge to the test and a solid recovery (so far) off this level.  The market is at a very critical juncture now.

The ‘zoomed in’ daily chart:

Price gapped lower this morning and then careened to test the March 2008 closing low at 11,731.  Today’s intraday low actually was marked (so far) at 11,725.  Price has since recovered strongly off this ‘bottom’ zone, but it will be absolutely critical to watch what happens next.

For fun, let’s look at the intraday chart as it has developed so far of the Dow:

I was trading short and noticed an extreme ‘pocket’ where price just fell about 20 points (on the @YM Dow-mini) contract in a matter of seconds.  I exited the position, figuring this could be a selling climax of some sort, and then looked down to the daily chart to note this level had been tested.

I honestly didn’t expect this level to be hit so soon.  Had I prepared just a little more in advance and written the number down, I could have been a little more prepared for the possibility, especially given the Fed meets tomorrow and could help send the market higher or lower by their decision (or wording of it).

It helps to write down potential levels from higher time frames that the market may ‘gun for’ or attempt to test throughout the day.  Of course, the previous day’s high and low often come into play, but sometimes important structural points on the higher time frames (such as a test of a longer term high or low or support/resistance line) will become the dominant expected play for the day.

The actual annual low of the year for the Dow is set at 11,634 in late January (but that was an intraday price only – the March lows represent more stable prices as the market actually closed at those levels, rather than testing them intraday).

A quick note on higher time frame levels:

The Weekly 50 period EMA, upon which price tested and inflected upwards today, stands at 11,772.

The 38.2% Fibonacci retracement off the 2003 bottom (monthly chart) is 11,606.

If you think the market is headed higher from this point, place a trade and utilize a close stop beneath these lows for a very outsided high reward to risk ratio, and if you think the market could head lower, wait just a few more days to see what effort the bulls (buyers) put into this test and if the critical level holds.  If not, short with confidence (or buy inverse ETF funds if need be).

Watch these levels very closely no matter what timeframe you trade primarily.  Things could get very interesting….

3 Comments

3 Responses to “Alert: Dow Tests March Lows Today”

  1. piker Says:

    Great Site. It also seems to be former a hammer candlestick. Is this a bullish sign as well?

  2. Corey Rosenbloom Says:

    Piker,

    If we can mark a close above the open (as it appears we actually won’t do, with 20 minutes to go), it would indeed be a powerful, low risk buy signal.

    It looks to be a sort of spinning top, but we’ll wait and see at the close what happens. Any bullish reversal candles would be valid, as price has made a large volatility move down.

    Thanks for the comment!

  3. vinaydh Says:

    It has finally broken down the lows and the weekly chart clearly shows a break of head and shoulder pattern unless the priice closes above 11750 tomorrow. Do you think it can be shorted with confidence on any pullback to 11750 level? If the head and shoulder pattern break holds; price should carry it below 10000. Just curious to know your take on this.