Updated Wednesday, 2/9 for Thursday's Market
Key DOW Levels for 2/10
UP Through 11,100
DN Current Trend
"Triangle Consolidation Completes
Watch 10,700 for a break at the Open. Consolidation target is 10,250"
Tuesday, we indicated, ".. if the Dow pushes down through the lower bounds
of the triangle, I would carefully consider whether the other indexes can
hold up in the face of such broad market weakness."
Take one look at the pattern that formed over the last several days, and
you have to say the verdict is in. As we indicated Monday, this "triangle"
is a bearish pattern, because we moved down to it from the high, at 11,750.
And, today's drop was consistent with the outcome of bearish triangles -
particularly ones with flat undersides (at 10,850).
The other indexes DID follow the Dow down, as I expected they would. The
reason? You have basic materials beat all to heck, and most of the
derivatives - semiconductors and other high tech products - trading at all
time highs. If the basic materials continue to drop, that either means
demand is decreasing or supply is increasing. I certainly haven't heard
about a sudden abundance in paper, chemicals, or aluminum! A slide
logically means business elsewhere is slowing. You can have a "bi-polar"
market for a while, but eventually, the NASDAQ, DOW, SP500 and OEX have to
synch up. It's one economy.
In the Daily Chart, we calculate a downside target of 750 points from the
consolidation, to something like 10,250 or 11,200. This is based on a
measurement from the recent high to the center of the triangle (750 points
from 11,000 to 11,750).
My best guess is, the Dow will continue down from here. The key is to watch
what happens at the open at our support level of 10,700. If the index
pushes through, and especially if it is accompanied by the other indexes, I
would expect the next stopping point to be 10,200 - 500 points down.
Watch 10,700 as well as the upper bounds of the triangle, at 11,100, for a
rally. We clearly have a ways to go for that level to be penetrated,
however. As a footnote, the SP500 and OEX are also weak, adding to my
pessimism.
Everything in the charts says that tomorrow will be a "down day". If we do
see sudden strength coming off this low, that could be quite bullish.
However, it will take a lot to get me on that side of the fence at this
point...
Thanks for listening, and Good Luck in Your Trading!
Ed Downs
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