Dow Jones Index - Where next?

The collapse of the American DOW Jones Index to below 11200 is not a surprise. The head and shoulder chart pattern forecast this result in 2008 January.

The DOW Jones Index has achieved the downside target created by the long term head and shoulder pattern. This target was located at 11200. In a bear market this is the minimum downside target. There was a small rebound from this target level. This target level was also at the same level as the long term uptrend line starting on 2006, September. This trend line has not shown strong support.

The head and shoulder pattern shows the market up trend has ended. The pattern does not tell us how the bear market down trend will end. The historical support and resistance levels show where the market may consolidate and develop a rebound.


Dow Jones Index weekly chart by Daryl Guppy using NextVIEW Advisor.

The previous resistance level in 2004 until 2006 was located near 10700. This previous resistance level may act as a support level for the DOW. In a bear market the previous resistance levels do not provide strong support. The historical support levels created during the market rise are more reliable. The historical support level is near 10,000.

From 2004 to 2006 the DOW traded in a sideways pattern. The top of the trading band was near 10700. The bottom of the trading band was near 10,000. There is now a higher probability that climax selling will cause the DOW to fall quickly towards 10,000. Support near 10700 is not strong.

Climax selling is important because it indicates the end of the downtrend. The climax selling is seen when price falls rapidly and there is very large selling volume. Then the market also recovers quickly, although buying volume is small. This situation does not develop a shaped recovery. This climax selling is a leading indicator that signals the development of a consolidation phase in the market. This phase may last for many months, or a year. The market trade\s in a sideways band.

There will be many individual American companies which will collapse in the next several months. Lehman Brothers fell more than 70% since 2008 February before declaring bankruptcy. The AIG chart has been falling for many months losing 80% of the price value. The recent bad news was also not a surprise to traders who use chart analysis. Many American stock charts show similar behaviour so we know there is more bad news developing.

The good feature of the DOW Jones index chart is the strong support between 10,000 and 10700. This is the area where consolidation will develop and the eventual development of a new uptrend.

To read more articles and commentaries from Daryl Guppy, click HERE

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Article contributed by Private Trader, Market Expert, Trading Coach and Best-Selling Author Mr. Daryl Guppy. For more articles and commentaries from Daryl Guppy, click HERE.

Stock markets afternoon update - Follow up on yesterday's rebound

Markets in Asia today follow-up on yesterday's rebound after a strong rebound on the US Dow Jones Industrial Average. The Japanese market heads the list with a 13.6% increase or 1,122.9 points, the biggest one day increase ever for the Japanese market. The huge jump was because the Japan stock market was closed yesterday when markets rebounded.

Investors are gaining a little confidence by bargain hunting on stocks that are being quashed last week, especially finance-related stocks. The central banks are trying very hard to save the collapse of the financial industry by using public funds to bailout ailing financial giants.

Below are the performance of world market indices as at 12.50 p.m. local Malaysian time (+8.00GMT):


Indices quotes from NextVIEW Advisor

N.I.N.E.

Stock Markets Rebounded Sharply

Markets rebounded sharply after a massive selldown last week, which is the worst week-ever in many stock markets. The heavily oversold markets have started to make a technical rebound amid UK government's 37 billion pounds bailout for 3 major banks. The US government's effort to sped the US$700 billion bailout plan has boost investor's confidence.

The US Dow Jones Indestrial Index, France's CAC Index and Hong Kong's Hang Seng Index rose more than 10% while other markets rose more than 5%.

However, the markets have to work much harder to come out of the down trend. Most markets had fallen for 6 consecutive months. "They are far below the underlying trend. I would wait to go "short" once a set up appears and indicates the rebound is over." says chief Market Strategist Benny Lee.

Below are the performances of major indices All are yesterday's close, except Korea's KOSPI and Australia's All Ordinaries which shows current level as at 8.15 a.m. :


Indices quotes from NextVIEW Advisor

N.I.N.E.

Gold: Upside possible, correction expected in the next few days

On October 3rd, gold spiked down to 817.50, marginally below my forecast support area of 821.

It has now reached the predicted resistance area at the top of the three week old trading range, at close to 926. A consolidation period is due before gold moves dramatically to the upside to test the July 15th high of 988.50.

A quick break to the upside is not ruled out, but two or more days of correction is likely to occur before the uptrend resumes.


Gold Futures chart as at 9 October 2008 using NextVIEW Advisor

R1 – resistance at 926.
R2 – 988.50
S1- 883.
S2-858.

Moving Average – 100MA – provided intraday resistance to the up move, but was convincingly exceeded to the upside on October 7th, and may now provide some support to a down side correction.

MACD – in positive territory and rising

Article and Commentary by Don Schellenberg

Forex: US Dollar against Chinese Yuan Expected to Consolidate

US Dollar against Chinese Yuan (USD/CNY)

On October 6th this currency pair gapped up slightly at the open, then closed down on the day. The next open was a gap down with a mid-week low of 6.7737, slightly below my forecast support area of 6.7856.

A few days of consolidation can be expected after which support around 6.7450 should come into range.

R1 – 6.8100
R2- 6.8300
S1 - 6.7737
S2 – 6.7450 (not shown on the chart)
MACD – negative and down
Mr. Li’s Sandwich – indicates potential support around 1.7600


USD/CNY chart as at 9 October 2008 using NextVIEW Advisor

Article and Commentary by Don Schellenberg

Forex: Downward Pressure Decreasing for EURO Dollar against US Dollar

Euro Dollar against the US Dollar (EUR/USD)

The USD has been strengthening against the Euro since early July, 2008. From around that same date the USD has been falling against the Japanese Yen. Since all major economies are suffering in a severe global downturn it’s difficult to make sense of currency movements based on their relationship to each other.

It would be even more difficult to make logical trading decisions in the currency market based on the state of the major economies and their tumbling stock markets.

Fortunately we have price charts. They represent the truth of current currency valuation and to a large extent give us a fair idea of what to expect, and a means for making logical trading decisions.

Last week I noted there was minor support on the chart at 1.3840, with more distant support at 1.3400-1.3100. On October 2nd the market penetrated the 1.3840 support area, reacted upwards slightly the next, and on Monday, October 5th gapped over the support area and continued downwards for the next two days to a low of 1.3478, very near to the stronger support zone beginning around 1.3400.


EUR/USD chart as at 9 October 2008 using NextVIEW Advisor

TECHNICALS

The market has been reacting upwards, partly in an attempt to close the gap of Monday, October 6th. When the upward correction is complete a further drop down into the support zone, particularly very close to 1.330 can be expected.

MACD – In the last few weeks the MACD reached its lowest in 15 years and is now again testing that area.
NextViewRSI – Showing positive divergence in relation to price, indicating downward pressure is decreasing.

R1 – immediate resistance around 1.3800
R2 – resistance at 1.4300
R3 – distant resistance at 1.4892
S1 – nearby support at 1.3440
S2 – support at 1.3300
S3 – 1.3000

Article and Commentary by Don Schellenberg