Dow Jones and XLF – A Test of New Lows

Feb 17, 2009: 10:24 PM CST

File this under “In Case You Missed It.”  The XLF Financial SPDR ETF closed at all-time lows today, while the Dow Jones closed on its November 2008 closing low, which is now a mere 102 points away from shattering the November lows, which would be a six-year low in the Index.  Let’s take a quick look at these developments.

Dow Jones Index (Daily):

It seems almost common sense now that prices were destined to challenge the November lows to see if bulls can put in a bottom… or if they will lose that final line in the sand as well.  With the index only 100 points away from this critical level, a test (revisit) seems almost inevitable now.  Whether or not the buyers hold this level will serve as a critical marker as to whether this is the bottom (the TV Media seems to want it to be) or not (as Elliott Wave and many other forms of analysis including basic trend assessment) seem to be hinting to us).

Just like the S&P 500, the 3/10 Momentum Oscillator is currently unable (or unwilling) to give us any clues as to what’s about to happen, though if we do manage to make a marginal new low here, it would perhaps set up a large-scale, triple swing positive momentum divergence… but that’s just wishful thinking at the moment.

If the argument “The Financials Lead the Market” is true, then we are certain to break and exceed these lows.  Let’s turn now to see the XLF making a fresh low today… which damages the bullish argument.

XLF Financial SPDR ETF:

You’ll need to look closely, but in January, the XLF broke the November lows (perhaps ahead of the market) and today, the XLF broke the January lows, setting in an all-time closing low of $7.97 today.

Price is beneath all three key daily (and weekly) moving averages, and they are all in the most bearish orientation possible.  Price recently failed a test of the falling 20 EMA.

The 3/10 Oscillator has clearly set-up a three-swing positive momentum divergence, but that means very little in such overwhelming trend conditions.

Keep watching these developments – it’s possible we see some majorly volatile (expanding) price action soon… and it looks like it could be to the downside now that 800 is broken on the S&P 500 and the Dow Jones is so close to breaking fresh lows.  There are likely a lot of stop-loss orders beneath these important levels.

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Corey Rosenbloom
Afraid to Trade.com

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6 Comments

6 Responses to “Dow Jones and XLF – A Test of New Lows”

  1. chartsandcoffee Says:

    Just posted my “Gallery of Charts” covering today’s action – http://chartsandcoffee.blogspot.com/2009/02/gallery-of-charts.html

  2. NotAfraidofTrend Says:

    Corey, the drop today was mostly gap down at open. After last Friday close, there were two sessions of S&P futures trading during which the gap was formed, at very low volume, thereby creating a good buying opportunity for stocks during RTHs.

    As per Elliott wave analysis, I personally think that we have either completed or are about to complete, wave 4B down. So, the next imminent wave is a powerful wave 4C UP.

    As much as there is bearish talk and an extremely strong bearish case, due to breakdown of the symmetrical triangle, a bullish case is also valid.

    Besides the Elliott wave count, On Balance Volume is also showing positive divergences; most so for IWM and QQQQ and even for SPY but not so for DIA.

    Moreover, as the implications of a breakdown are very ominous, it is unlikely that PPT won’t spring into action, causing a “Stick Rally”, and that would be in line with the wave 4C UP theory.

    Thanks for all your good work, but in line with warnings often heard against a purely one bearish outlook, a bullish case should also be considered.

    Thanks again and Good Luck on your trading!

  3. NotAfraidofTrend Says:

    Corey, the gap down today looks like an exhaustion gap. It is possible that we will have a gap up open and an island reversal tomorrow. It is quite possible!

  4. Jack Says:

    Today is a Fib date. Look for a vicious countertrend rally to start to form.

    And when it’s done weeks/months from now, total collapse.

    The eye of the storm is here.

  5. Corey Rosenbloom Says:

    NotAfraid,

    Excellent thoughts and observations. Thank you for sharing.

    We’re so tightly balanced right now that it seems anything could happen. The “C is yet to come” idea is one I’ve batted around as well and it certainly could happen but it just feels like yesterday’s move was more likely to be part of a 3rd wave than not. A Big C Up would put us into quite complex wave territory.

    I didn’t notice the OBV divergence – thank you for sharing that. I know it’s an important indicator but I just don’t look at it as much as I should.

    As for the PPT, that is what makes it so risky to just load your account short and have fun. Were it not for the risk of sudden news-related up-drafts, I think trading would be a whole lot easier (from a short-selling standpoint that is).

  6. Corey Rosenbloom Says:

    Jack,

    What kind of Fibonacci date do you mean? I’d love to get more involved with Cycle Analysis so any insights you could share with readers would be appreciated.