On Thursday 26 June 2008, Dow Jones Industrial Average (DJI) crashed and fell almost 360 points after crude oil futures rose sharply passing above $140 level and was told by OPEC president Chakib Khelil that crude oil prices could go up to $170 per barrel this summer. Dow loses extended to Friday when it dropped 106.91 (-0.93%) to close at 11,346.51. DJI lowest level of 11,634 in Jan 2008 was taken out by the bear and we have a confirmation in the bearish trend as in lower highs and lower lows. However the S&P 500 Index have not breach the lowest point but closed right on it. Nasdaq Composite was far from the lowest level but had broken out from the bear flag last week to continue its downtrend movement. Do we still need to question the recession in US economy? Although we have inter-market divergence and can only confirm bearish market trend for the whole of US when the S&P 500 and Nasdaq Composite break their lowest level in 2008 but I have no doubt that we are already in recession with the credit bubble burst, rising food prices and crude oil prices. The relevant question will be how long will this recession be and where is the next stop for Dow Jones.
In my earlier post, I have given three main points of why I see that the worst for Dow Jones is not over yet. In this week we saw Dow plunged almost by 500 points from last week closing price without giving second consideration to pause for a while at the lowest level of 11,600. This was truly a violent week for Dow Jones. So we don’t have a doubt that the bearish trend for Dow will continue next week as we already have trading signal confirmation.
The S&P 500 Index closed this Friday near the lowest level since 2008. Although it has not break the lowest level to confirm bearish signal, nevertheless I do believe it is a matter of time. Could it be next week? Well, that is a likely possibility. Breaking out from the bear flag is a downtrend continuation chart pattern and it is profitable to short when it does gives you the breakdown trading signal. With the pressure of rising crude oil prices and the fear of credit crisis as well as the rising inflation rates globally, I believe it will be very soon to see S&P crash.
Nasdaq Composite triggered a sell signal last week when it broke out from the bear flag chart pattern. This is a bearish trend continuation chart pattern and it is a very profitable trade setup. Could Nasdaq Composite rally from here to form new high above 2550 level? It could be. Always remember that we should not be dictating how the market should moves but rather take our position based on entry and exit signal given by information from technical analysis. That is the right mindset every traders should have to keep us from catastrophic financial loss.
Where will Dow Jones be heading from here? I am looking at next support level at 10,778 points which is the 50% Fibonacci retracement level. However, a more likely support level will be 61.8% Fibonacci retracement level at 9,985 points or 8,831 which is the 78.6% Fibonacci retracement line. Immediate resistance level will be at 11,615 which was the Jan 2008 lowest level. If till this point you are still a skeptic to technical analysis, please take a closer look at the chart right above. Can you see how the market rebounded from the 38.2%, 50%, 61.8% or even the 78.6% retracement lines? The blindness to technical analysis can only be remove by having an open heart and mind to learn from the market and even nature itself.
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