Current Pure Price Reference Levels to Watch on Dow SP500 and NASDAQ

Aug 26, 2010: 11:40 AM CST

Sometimes it can be very helpful to pull off all the indicators on the chart and look at a pure price chart in order to gain a perspective of what price levels hold the most significance at the moment.

That’s what this post is – a price purism look at the three major US Equity Indexes in terms of what closing price level, along with what “spike” price level, you should memorize for a reference going forward.

Let’s start first with the Dow Jones:

The goal of price purism charts is to figure out very quickly what levels leap off the chart at you as significant.

For the Dow Jones, there’s a clear level – logically – at the psychologically important “Dow 10,000.”

Price has managed to close and bounce off of that level twice since May, falling under it only twice.  Not even the recent downturn was able to close the index under 10,000 – yet.

Under the ‘psychological’ level, we have a secondary level at 9,800.  Twice, the index ‘spiked’ down to that level and bounced off of it.

The one exception we’ll find to the support levels in all cases is the July lows – which broke the key support levels in a vicious bear trap.

For now, keep focused on the 10,000 level and then under that the 9,800 level in the Dow… and of course anything under 9,600 would push the index down to a fresh new 2010 low.

Next is chart-wise similar S& 500:

To me, the levels in the S&P 500 are clearer.

We have a clean level of closing support at the 1,050 level and then a second “spike low” level at 1,040 – that’s easy to memorize.

Buyers have swooped in to support the market at both the 1,050 and then the ‘none shall pass’ level at 1,040 – again with the exception of the bear trap from July’s low.

The NASDAQ is a little different in terms of closing and spike levels – as we see from its daily chart:

The NASDAQ really doesn’t have a spike low fire-wall like the Dow Jones and S&P 500 have – and the key level to watch in the NASDAQ is 2,150.

What’s interesting is that the NASDAQ – often seen as a leader for the S&P 500 and Dow Jones (meaning what the NASDAQ does first, the others do later) – has broken the key closing support level at 2,150 and moved closer to testing the July – and subsequently 2010 – low at the 2,070 level.

Buyers and bulls need to get this index back above 2,150 quickly if they want to hold the market up here and prevent a potential swift decline.

And that’s the overall thesis we have right now

First, watch all these key closing and spike low price reference levels for potential support.

If buyers/bulls are unable to keep the indexes above the key support levels – and then above the respective July ‘bear trap’ lows, then we could see a very sharp, quick sell-off as buyers throw in the towel on this market.

They have a chance as long as the index remains above these support levels – but their chances fade dramatically on a break to fresh 2010 – and subsequently fresh 52-week lows.

That will get a lot of media attention that could create further selling which will drive prices even lower.

For now – watch these levels as the key to the future.

Corey Rosenbloom, CMT
Afraid to

Follow Corey on Twitter:


15 Responses to “Current Pure Price Reference Levels to Watch on Dow SP500 and NASDAQ”

  1. Terlyn12001 Says:

    In fact on a linear regression channel with 2 standard deviations, 10,000 is the mean since 1999. That's as far back as my charting goes on Tradestation.

  2. Jamesfowlkes Says:

    The action in the QQQQ and IWM is rather unsettling as small-caps and tech normally lead.
    However, in this atmosphere of fear investors seem to be gravitating to larger, “too-big-to-fail” companies. Knowing that the government will step in and “save the day” has changed the small investor's thought process.

  3. James Fowlkes Says:

    The action in the QQQQ and IWM is rather unsettling as small-caps and tech normally lead.
    However, in this atmosphere of fear investors seem to be gravitating to larger, “too-big-to-fail” companies. Knowing that the government will step in and “save the day” has changed the small investor's thought process.

  4. Loungechair632 Says:

    I was wondering what your thoughts are on a possible Bear Trap if the July lows are breached. I remember how bearish all of the talk was once the June lows were broken, but as we now know, price didn't stay down very long. Since everyone is watching the July lows, do you think it is possible that hedge funds are trying to pushing price down to break these obvious support levels in order to get buyers to throw in the towel?

  5. Corey Rosenbloom, CMT Says:

    Interesting – I'll have to take a look at that.

    Yes, the “2000's” have been a “lost” decade for US Stocks.

  6. Corey Rosenbloom, CMT Says:

    Right – with Republicans poised to capture at least the House – and expand their majority in the Senate – I'm not sure how much more bailouts we'll have – at least in terms of those that require Congressional approval so that's something to think about.

    But right – investors may have become complacent and expect the Government to step in at any sign of major danger.

  7. Corey Rosenbloom, CMT Says:

    I remember too – markets often move to confound/confuse the majority of the people – the majority of the time. The July 2010 bear trap and the July 2009 failed head and shoulders pattern (July is becoming the official month for bear traps!) are good examples of that.

    There's no way to know – but the main thing is that if you do decide to short any breakdown, be prepared to cover instantly on the first sign of bullish strength and a rise above these levels. Don't sit there and fight the tape and stay stubbornly short – the market has shown a recent pattern of destroying bears so I think we have to incorporate that reality into our trading/investment plans.

  8. Me_XMan Says:

    Looking like 950 coming for S&P.

  9. Ayush Khatri Says:

    what are your thoughts on the action today ? stay short over the weekend or cover shorts bought around 1160 today that are already in 20% loss 🙁

  10. John Says:

    The 10000 on the Dow are working again. Amazing support.
    It seems we'll start next week with a nice buying pressure that would take us back to the Moving averages (50 and 200). On the best case, it's possible that the Indexes keep raising up to the recent highs.

  11. forex-cat Says:

    Good point.Good analysis.

  12. steveo77 Says:

    dont understand, already in 20% loss?

  13. Magic Mystery Buyers at SP500 Level 1040 Define Bull Bear Battle | Afraid to Blog Says:

    […] Aug 28, 2010: 3:09 PM CST From a pure price standpoint, as I highlighted recently in the post “Pure Price Levels to Watch in the NASDAQ, Dow, and S&P 500,” the levels I highlighted came into play in a major way on Friday, with the market sell-off stopping […]

  14. Quick Daily Chart Update on Financial ETFs XLF and SKF | Afraid to Blog Says:

    […] with what jumps off the chart at you, we see the similar range-bound rectangle trading range between $15.00 and $13.50 that we see in the S&P 500 – and those will be the price […]

  15. Eyeswideopen Says:

    hi corey i agree seems they will try and pull the plug and get the short term traders and weak hands to sell and with the sentiment being bearish and showing oversold indicators will probably get a snap back ralley fueled somewhat by short covering and traders who see it…imho