Dow Hovering, Threatening, Teetering

Nov 19, 2007: 8:31 PM CST

The Dow Jones Industrial Average, along with the broader S&P 500, is hovering dangerously close to full-bear technical territory.

The daily chart is in a confirmed downtrend (as defined by moving average orientation and series of lower highs and lower lows), and is threatening to test the lows made in August which carved out a Key Reversal pattern. Two cuts from the Federal Reserve may not have been effective in saving this market, at least from a technical analysis standpoint.

The major US Indexes are in precarious positions with little technical relief in sight:

The chart may appear ‘busy,’ but let’s break it down. I have drawn two parallel declining trend channels since July. Separating the channels is an upwards swing in price due to the reaction to the Federal Reserve’s Interest Cut Bonanza.

From a quick TA perspective…

  • Price has solidly and convincingly broken the flat/rising 200 period moving average
  • The 20 period MA is beneath the 50 period MA, but both are above the 200 (not totally bearish yet)
  • Price is situated (positioned) to retest (revisit) the August closing low around 12,800, which is actually 150 points away
  • Our momentum oscillator registered a new momentum low, taking out the lows of August and July (hinting at possible further downside action)
  • Price is in a confirmed downtrend on the daily chart – no ‘bull’ can argue this fact now
  • Volume is getting lighter probably due to the upcoming holiday (Thanksgiving)
  • The bottom of the declining trend channel coincides with the August lows, which could draw price there as a magnet
  • Bottom fishers may play for a reaction swing up (retracement & small target only) should price make it down to 12,800 (realizing this is counter-trend)

The S&P chart shows very similar characteristics.

The NASDAQ is situated right on its flattening 200 period moving average (here’s a peek):

The New Momentum Low on the NASDAQ is far more pronounced than that of the Dow and S&P 500. However, price seems to be finding temporary support at the 200 day simple moving average.

The NASDAQ is also in a confirmed daily downtrend.

The daily charts of the major US Indexes are not showing comfortable bullish sentiment. Take caution and play safe in this environment.

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