Stock Trading Predictions & Technical Analysis: Dow Jones

Thursday, May 20, 2010

Dow Jones - Breaking Down

Dow Jones - STRONG SELL SIGNAL

With the market continuing to sell off and moving down sharply, the Dow Jones has broken yet another critical support level; the daily 200 day MA.

The last time the 200 day MA was broken was at the beginning of the year 2008, and I don't need remind you what happened thereafter...

At this time the Dow Jones has some support at 10000 and 9900, but another sharp move down that causes the Dow Jones to close below these levels could send the Dow Jones back to 2008 and early 2009 levels. Obviously, this would be catastrophic but is now a feasible reality. The Dow Jones is also now trending below its 20 day daily MA and only when the Dow Jones will manage to move back up this MA can we expect a possible reversal in the trend. Right now we are standing near critical levels which could dictate where we might be heading for the rest of the year. If the Dow Jones manages to bounce back up 9900 and 10000 to eventually break back up above the 20 day MA, this could be just a simple correction. However, I do have to admit that the way the market is acting right now and with the volatility we are seeing, this is looking like the beginning of 2008 all over again. There is still hope for a reversal, but things are obviously looking very bearish. The 10000 support level at the 200 day daily MA coincides with the 50 day weekly MA, which means that a closing below this level would be even more significant and perhaps even more reliable.

Right now, I wouldn't jump in at taking short positions, given the fact that we have already moved so low in such a short time and also because we are now standing near critical support levels which a bounce back up from could be our last hope of seeing the market reverse back up. Keep in mind that until the Dow Jones moves back up over its daily 20 day MA, that the major down trend will remain intact. At this time and especially if the 9900-10000 level is broken, you should take short positions for the long term and only short term long positions (max 1-2 weeks holds) on throwbacks. I do expect the market to bounce back up sooner rather than later, but again seeing the trend reverse back up is not very likely, as I expect the major trend to stay down for a while.

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TECHNICAL INDICATORS

BUY SIGNAL: Indicates the possibility of the start of a new up trend or the continuation of the current up trend. This signal may be often given in the early stages of a potential new up trend that was preceded by a down or sideways trend. Such signals do not always succeed and may fail at time.

BUY: Indicates that the current up trend is already in motion and a BUY SIGNAL was already given earlier. A BUY does not necessarily indicate that the stock will continue higher from here, but simply that the stock is trending up. The further into the trend you decide to take a long position, the more risk you have of seeing it reverse back down sooner rather than later.

STRONG BUY SIGNAL: Indicates a stronger, more significant and reliable signal than a BUY SIGNAL which usually has less chance of failing. Such signals do not always succeed and may fail at time.

STRONG BUY: Indicates that the current up trend is already in motion and that STRONG BUY SIGNAL was already given.

SELL SIGNAL: Indicates the possibility of the start of a new down trend or the continuation of the current down trend. This signal may be often given in the early stages of a potential new down trend that was preceded by an up or sideways trend. Such signals do not always succeed and may fail at time.

SELL: Indicates that the current down trend is already in motion and a SELL SIGNAL was already given earlier. A SELL does not necessarily indicate that the stock will continue lower from here, but simply that the stock is trending down. The further into the trend you decide to sell a position, the more risk you have of seeing it reverse back up.

STRONG SELL SIGNAL: Indicates a stronger, more significant and reliable signal than a SELL SIGNAL which usually has less chance of failing. Such signals do not always succeed and may fail at time.

STRONG SELL: Indicates that the current down trend is already in motion and that STRONG SELL SIGNAL was already given.

HOLD: Indicates that traders who already hold this stock, should hold on as long as the trend persists. This signal is usually given during an up trend for which it would be considered too risky to take a long position at this point.

STRONG HOLD: Indicates that the current trend has been in motion for a while and rarely deviated away from the trend. Although the stock may continue higher, there may not be enough potential up side to trigger a BUY SIGNAL. This type of indicator usually means that the stock has very strong support levels which may have been tested but not broken.

WAIT: Usually given during a sideways trend for which we are waiting for a move that would trigger a BUY SIGNAL or SELL SIGNAL. This could also indicate uncertainty and the risk that would be taken if you were to take a long position at the current level. Taking a long position after giving a WAIT indicator is considered a gamble.