Market Metldown

Jul 26, 2007: 6:00 PM CST

down-arrow.jpgOk, so today’s action in the stock market wasn’t as bad as it could have been, but it was bad.  You all know the headlines and the reasons, so I won’t address them.  The headlines blame the housing market, rising gas prices, rising interest rates, etc.

A few of the major stocks had declined greatly in the past few days, as noted previously, yet the broad market held up despite these losses.

Apple (AAPL) has recovered to close above where the ‘shock’ decline day occurred, having formed a very interesting doji-type candle pattern today.

Twenty-nine of the thirty stocks in the Dow Jones Industrial Average declined today – unsurprising given the negative sentiment and price action in the broad market.

Let’s look at a three month and five month chart of the Dow Jones Industrial Average:

The three month chart underscores the magnitude of today’s decline, taking us through both the 20 and 50 period moving average (imagine a hot knife through butter, or some other  similar analogy).

dow-3m-july-26.png

We have also made new momentum lows on the 3/10 oscillator.  Although I have not shown them on the chart, most oscillators (stochastic and RSI) are showing oversold signals and are nearing fresh buy signals.  Although today’s action was staggering, it was a mere part of a steady sell-wave (counter-impulse) against the confirmed uptrend which is still firmly in tact.

dow-6m-july-25.jpg

I have annotated the five-month chart of the Dow above. It is important to look past the headlines and realize that the day’s action was part of an orderly pullback wave that has taken us back into the recent consolidation zone.  Unfortunately, the market tricked investors with a false-breakout move which has now been faded back to the previous range, trapping many unsuspecting investors/traders.

What’s happening now?  I cannot stress enough that the action did not cause severe technical damage on the charts.  There is a clear support zone right below price action that could thwart the selling momentum in the short-term, but should this level fail, bears would gain authority and further deteriorate the rising market.

In short – don’t panic yet.  Stay steady to your initial trades and allow them to be stopped out naturally if that is to be the case.  It’s usually best to honor the parameters of the position you established when you put the position on.  Don’t let emotion cause you to exit trades early – be a little brave in spite of the ‘fears’ in the market.  If the market continues lower, have downside protection in place, but don’t jump the gun just yet.

Regardless, be safe out there!

7 Comments

7 Responses to “Market Metldown”

  1. The Dividend Guy Says:

    Thanks for the post and the sound of reason in a market where all the media seems to be calling for the end of the world. In addition, on a totally unrelated matter, I love you graphics, especially the down arrow!

    TDG

  2. Corey Says:

    Thank you for your comment!

    Stick around, as I’ll be introducing new graphics soon! I just got Word 2007 and it has some stellar graphics editing – which surprised me. I’ve found some new techniques and will be working them into the site.

    Thanks so much.

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