Index Support Shattered and Dollar Hits New Low

Oct 19, 2007: 9:44 PM CST

The headline may sound like something out of The Twilight Zone but that is exactly what happened with the anniversary of the 1987 Stock Market Crash on October 19th, or Black Monday.

The Dow Jones Industrial Average surrendered 367 points (-2.64%), which drove price definitively through the rising 20 and flattening 50 period exponential moving averages, which have served as temporary support.

The gains from the Federal Reserve Decision have almost been eroded, and the momentum reading registered a new low, warning of potential new price lows (at least lower than the current price) are likely to come soon.

Divergences with momentum are resolving to the downside, yet there are indeed bullish technical factors to consider… albeit weak factors.

dowoct19.png

Price appears to be completing a violent sell swing, yet volume did not spike to a higher level, adding a bit of hope for the bulls.

Our Momentum Oscillator (3-10-16 MACD) did not yet make an official new low, yet it did register a lower relative low.  A new momentum low will be set in place should price continue to decline.

Expected support was shattered today.  Support potentially could arise from the highs of the consolidation area from August 20th to September 17th.
The Weekly Dow Jones Chart offers a bit of hope for the bulls, as price terminated at a potential support zone:

dowoct19w.png

A momentum divergence has developed (and is possibly resolving) with price.

Bulls can hope for price to support at the rising 20 period exponential moving average, but should price falter and fail through this level, the bullish case will be severely questioned for validity.  The next likely support – should price decisively break 13,500, may be the psychological support area of 13,000 which also corresponds with the rising 50 period moving average.

Again, price may find support at the 13,500 area at the consolidation zone established last month.  Time will tell.

Looking beyond the Dow Jones, the US Dollar Index made a new index low today, meaning other currences strengthened relative to the US Dollar yet again.

I highly recommend an excellent yet brief and easy to understand article from Aakansha Singh entitled “sagging dollar” which details what a new index low means, as well as why it is happening and what the implications might be for US citizens.

Now, let us view the strong downtrend in the Dollar Index:

dollaroct19.png

Price made a new low yet momentum failed to make a new low.

The posture of the moving averages are ultimately bearish, with the 20 period a distance from the falling 50, which is very far beneath the 200 period.

Until the trend is changed, the trend is in force, and we can expect lower prices in the US Dollar Index.

With the stock market in potential overall weakness, and the fact that October has historically yielded a few shocking surprises for the market, one might do well to be overly cautious at this time.

All the best.

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