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The BREAKDOWN continues

(April 28, 2002)

One of the reasons we regard our exit from our regular commentary as untimely is the fact that the market has now technically broken down. The 50 DMA, 100 DMA, the 200 DMA, the up trend line from September 2001, the 10,000 level, and so forth. We hate to say this but the current action now resembles the action immediately before the September 11 attacks on the World Trade Center. Question: If the terrorists were aiming to strike and/or disable our stock market and economy, what would be another perfect time to strike? Answer: You don't want to know.

For the week, the Dow Industrials lost over 340 points - the worst performance since the week immediately after the September 11 attacks. The Dow Industrials is now over 700 points away from its recent closing high of 10,632 made on March 12. The Nasdaq is at a six month low - approximately 30 points away from its April 2001 lows. If that support level goes, then it's all the way to the September 2001 lows of approximately 1,390.

The VIX jumped to 24.64 - indicating that fear has again crept into the markets. The VIX is now in an up trend, something you can't say about stocks in general (except gold stocks)

Like we said, both the Dow Industrials and the Dow Transports are now technically very vulnerable. We believe it is only a matter of time. Check out the following charts:

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

More decline away from good support at the 100 DMA. Last Wednesday, we made the case that both the 10,000 level and the 200 DMA (which currently stands at around 9,940) have not been very good support levels at all, and this was demonstrated on Friday's session, as the Dow Industrials sliced through those levels without looking back (even though the big interests were obviously struggling to hold the 10,000 level). The fact that was achieved based on a better-than-expected 5.8% GDP growth was another red flag for the bulls.

No doubt, however, both the 10,000 level and the 200 DMA are being watched by a lot of people. We have been told that Don Hays (of www.haysmarketfocus.com) claimed in his Friday morning's commentary, that the Dow Industrials most likely has bottomed since it bounced off its 200 DMA on Thursday's session. Based on his 10-day ARMS index indicator, he has also been calling for a significant bottom. Friday's session changed at least the former argument. No doubt, a lot of his subscribers are now very irritated since once the Dow Industrials took out the 10,000 level, it sliced through the 200 DMA faster than you could press the sell button on your online brokerage account. Just goes to show how futile it is trying to predict a bottom in this big, bad bear market.

Following is the chart for the Dow Transports:

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

Recall that the red line is the 50 DMA (2,839).

100 DMA: 2,756

200 DMA: 2,650

Current level: 2,722

The Dow Transports had a bounce on Thursday and a slight decline on Friday. That being said, the Dow Transports is still below all its significant support levels. When/if the Dow Transports breaks through the 200 DMA (along with the Dow Industrials remaining below its 200 DMA) then we believe the aggregate stock market will be in "full sell mode" (euphemism for "crash mode").

This just about ends our regular commentary. To conclude, we believe the current situation is now very vulnerable to a "crash" from here. Try to predict the bottom at your own peril. We have had a bad feeling about the stock market (and the economy in general) for the last two weeks (including the rising gold price), and we feel that it is now coming into pass. We wish everyone our sincere best, and hopefully, we will get your continued support in the upcoming future!

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