The Dow touched it's downward trendline yesterday and a bounce today continues the pattern of the past ten months or so. If it stays on track, we'll have a rally in the Dow lasting 2-4 weeks and taking us back up to around 10250.
This slowly declining ten-month pattern, however, has been buoyed up by a dollar bounce -- and this bounce has now collapsed. After today's freefall, we're basically back where we were at the beginning of the year.
The dollar closed at 84.95; a year ago the low was 84.56 (http://stockcharts.com/def/servlet/SC.web?c=$USD,uu[h,a]daclyyay[de][pb50!d20,2!f][vc60][iUb14!Uh15,5,5]&pref=G ). Breaching this low would just continue the pattern from last year, and at the moment there's no reason to believe we won't go way lower. But we're also due an echo bounce.
So we're at a short-term crossroads -- we could get the combined bounce of the dollar and the Dow, starting tomorrow, or the falling dollar may drag the Dow down with it.
The long-term relation between the Dow and the dollar is obviously complex, but in the short run what we're seeing is a reluctance on the part of foreign investors to buy dollar-denominated stocks and bonds, pushing both down.
Add to this the fact that the elections are a week away -- a lot of people would like the market not to tank right now, and others wouldn't mind at all.
I'm guessing we'll get our bounce and that the market will climb during the coming week. The cost of a collapse right now is just too high. It's just a guess though -- the situation seems very volatile (just look at the plunging dollar today).
I'm currently short and not covering -- I don't see how the bounce can really be sustained, and don't want to miss out if the bottom falls out. But technically we should bounce first.
Cheers,
K |
