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Saturday, October 25, 2008

The crash that wasn't...for now

Note - I am out of town Monday...I hope to resume posting Tuesday or Wednesday.

For all the consternation and hand-wringing Friday morning, the market was surprisingly tame. It was a "normal" down day - normal in the context of the past month anyway. As I discussed in the post below, the futures were limit down long before the markets opened, but when all was said and done there was not a major sell-off; in fact, Friday's range was not even as wide as Thursday's range.

Below is the Dow chart I have posted in the past. Since reversing off the 50% retracement on 10/14/08, price has actually made an orderly move back towards the 10/10/08 lows. Scenario #1 is a retest of the lows and a bounce. Scenario #2 is a break of those lows and a move towards the Fibonacci extension (FE) which puts price sub-7,000 (6,510 for those of you doing the calculation).

Sub-7,000? Impossible, you say. But if I had told you the Dow was going to fall from above 11,800 to below 7,800 in two months, you probably would have said that was impossible too.

Of course, a gap up and move above the trendline could spark a run back to the 50% retracement. But if I were a betting man (and I'm not), I would say that 10/10/08 low is a magnet pulling price to it, with the real question being whether that level holds.

As I have stated before, I just trade the setups given to me every day. I feel for anyone trying to swing trade or position trade in this market.



TL said...

I'm a not a big fan of longer term technical analysis either ("breaking" news often disrupt the pattern), but what I see is a break to the downside of the triangle (High: 9794, Low: 7882). Unless prices recapture the downtrendline (preferably on high volume) and hold for a couple days, measured target is around the 7000 level. That said, if I see an intraday long setup, I'll take it.

Terrance said...

I can easily see below 7,000. I think there is a lot of pain ahead.