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BREAKDOWN

(April 24, 2002)

There.  We said it.  Of course, now that we said it, the markets will be free to rally tomorrow.

The Dow lost 58 points today, after having been up as much as 75 points in the early afternoon.  The put/call ratio during the morning was quite high.  In fact, at 9:30am CT, the total put/call ratio was as high as 1.11.  A few weeks ago, this would have caused the market to stage a stunning rally in the afternoon.  Today, we chalked up another one for the bears.  For the week, the Dow is down over 225 points.

To put everything into perspective, we will take another look at the chart of the Dow Jones Industrials:

Current and Key Support Level of the Dow Jones Industrials (September 2001 to Present)

Notice that we changed the appearance of the chart slightly.  The red line is still the 50 DMA, while the black line with the arrow is still the up trend line from the September 2001 lows.  The former has been a good indicator of the trend while the latter has been pretty good support for the DJIA for the last few months.  Everything changed in the last couple of weeks; however, as the Dow has already broken below the up trend line and as the 50 DMA is about to peak early next week (unless the Dow can rally above 10,100 and move further up from there).

However, another important support for the DJIA has been its 100 DMA (green line above).  As one can see, the 100 DMA has been a good support line for practically the last five months.  Last night, the DJIA was sitting right at the 100 DMA, at 10,089.  The fact that it broke the 100 DMA is very ominous.  The only obstacles left now are the 10,000 mark and the 200 DMA (which stands at 9,946).  FYI, both have not been very good support/resistance levels in recent months - together, they are now merely a psychological barrier for both the bulls and bears.  We believe these levels will be taken out in due time, and once those levels are taken out, the decline will again accelerate.

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