Wall Street plunged 394.64 points (-3.13%) closing at 12209.81 on Friday on 6 June 2008 after oil prices shot up and hit a new high above $139 before closing around $138. There are many questions looming in our head as to where the Dow Jones are heading. Is the worst for Dow Jones over yet? Another question that we are wondering: Are we in recession? Sometimes I wonder why we can’t get a straight answer to such a straight forward question. Well, let us look at it from the perspective of technical analysis.
I have labeled three major focus point A, B and C on the weekly chart for DJIA. Don’t get confused with the labeling above with Elliot Wave as my above label are meant for our discussion point only. However, from the above chart (not labeled) we are seeing a five wave down starting from Oct 2007 and that strengthen my opinion that the worst is NOT over yet.
- The high at this point hit the 61.8% retracement line from the top of 14198.10 points formed at Oct 2007. What does this tells us? I would see the previous rally as a correction to the downtrend rather than a healthy uptrend. The previous rally was there for us to sell if we have missed the boat during the fall on Oct 2007.
- The breakout from the bear flag at this point would suggest a continuation from the previous downtrend. Please be reminded that a solid confirmation for the downtrend would be for the DJIA to take out the 11600 level and that would be another 600 points from here.
- At this point the Dow Jones closed on last Friday at 23.6% retracement line would probably suggest a strong support at this level. We might see some bounce up at this level. However don’t take risks on this as it could be deadly if the bear decided to take out the support line. Overall picture is still bearish.
From the above chart, we could see that the downtrend is strong and the previous rally was merely for us to sell and offload our holdings. However, from the point of Elliot Wave, we could be seeing another rally up from here to form a zig zag correction to the first 5 wave down from the top of Oct 2007 OR we could be seeing it goes straight down. These are all the possibilities for our consideration. I would suggest sticking to the short side of the market and I believe that this coming week would be a roller coaster ride as it could jump up and down few hundreds points. Enjoy the roller coaster down.
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June 10th, 2008 at 11:23 am
On Monday June 9, Dow Jones closed at 12,280.32 up 70.51 points. As mentioned, point C does provide some support to the downtrend movement. Please be reminded that the overall immediate trend is bearish. If Dow support at 11600 level breaks, then we could see some nasty move downwards.
June 10th, 2008 at 6:03 pm
Hang Seng Index closed at 23,375.52 downed by 1,026.66 (-4.21%) while Nikkei 225 downed by 160.21 (-1.13%) closed at 14,021.77 and Singapore STI closed at 3,033.05 downed by 50.97 points (-1.65%).
The interesting about this is Malaysia KLCI closed at 1,230.96 downed only by 0.02 points while its FKLI futures June 2008 contract down by 10.5 points to close at 1,204. This is a bearish sign for Dow since KLCI often times follows DJIA and also HSI in the opening morning market. We are seeing a divergence between KLCI cash market and its futures market with a huge gap of 27 points apart and this tells us one thing. Be prepared for a tough day for Dow today.