Dow Support & Resistance

The S&P 500 is down 11%
over the past three weeks. Investors are very concerned. For some perspective on
the latest stock market action, today’s chart presents the current trend of the
S&P 500. As today’s chart illustrates, the current decline in the S&P
500 has been sharp and just resulted in a break below support (green line) of a
four year uptrend.

Dow_20080118

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What's been said:

Discussions found on the web:
  1. snoopy commented on Jan 21

    India (Bombay Sensex) might have finally topped.

    Last week retail investors were literally rioting outside investment banks to buy into a new IPO by Reliance Power (their first power plant might not even be operational till 2009).

    Almost on cue, theres a huge sell off in progress now (Sensex now down > 15% from its peak). CNBC dumb blondes finally look dumbstruck, and saner heads with not-so-pretty faces being called back from forced retirement to opine on the selloff.

  2. BB commented on Jan 21

    Wow,

    as of right now.. ES mini is down -32.00, with the low overnight of 1282.50, -42.00. China down -1300, Dax down over -200. now thats an impressive drop. I got this one dead wrong. Really thought we were getting ready for a dead cat bounce, before we had the next leg down. Rats, I am flat over the weekend.

  3. BB commented on Jan 21

    I spoke too soon. ES mini now down -49 @ 1276.

  4. Luk commented on Jan 21

    I’m from Belgium and at this moment there is a huge panic. Our index is down 5 percent, it’s third biggest decline ever. Banks are down huge.

    I think it’s the panic moment we’ve been waiting for. From now on, there should be a small recovery before going down further.

  5. snoopy commented on Jan 21

    Eclectic:

    The US decoupling theory has its own bizarre twin in India.

    Some of the anchors on CNBC India were claiming that the selloff was a domestic Indian phenomenon partly triggered by retail investors selling stocks to generate cash for investing in the Reliance Power IPO. This turned into a panic selloff as margin calls hit. I nearly spilled my morning “chai”.

    And many experts on CNBC were asserting that the (Indian) fundamentals are still strong, and this is a “healthy” correction.

    So – I think this is a great time to buy AND sell emerging market stocks.

  6. Upside commented on Jan 21

    This will all but ensure a Fed response in the next few days. Market declines like this (along with their headlines) are themselves a risk to the economy. Watch out for BAC on Tuesday. That alone could make or break the market this week.

  7. cinefoz commented on Jan 21

    This is a terrible chart. Whoever did it lopped off most of the bubble top and made the dip today look like a rout. The scaling is off and the averaging of the points is arbitrary and creative.

    The top line should display a massive bubble, starting around late 2006. The bottom line should be almost perfectly connecting ALL the bottom points.

  8. Screwed Saver commented on Jan 21

    Snoopy said:

    “So – I think this is a great time to buy AND sell emerging market stocks.”

    Ha! Good line Snoop…and thanks for the Indian perspective.

    This market action is really impressive. If I was waaaay long I’d be soiling myself right now…but I wonder what effect, if any, the US holiday will have on the flush.

  9. cinefoz commented on Jan 21

    Correction,

    The connection point for the last dip should be around S&P 1350. Even though I was wrong above and the bottom is out of bounds, the chart is still misleading overall.

    The world selloff going on today is common at US market bottoms. I was expecting it, but goofed and thought ‘this time world be different’. Next dip, I will be more patient.

    Last time I made a lot on emerging markets by waiting them out. I didn’t invest in them last week. This time will, hopefully, be the same and I make a bundle on them again. I’m still at 50% cash.

  10. Luk commented on Jan 21

    The most important index in Belgium is down more than 6%. That is the second biggest decline ever.

    Our banks are getting undervalued with P/E’s of 4 and 5 lollll.

    The Dutch index, AEX, is down 25+% from it’s high (560).

  11. John Borchers commented on Jan 21

    I don’t think our Fed does anything. They wouldn’t want to be responsible for what would happen. They will wait on the side and let free markets run. After the crash they’ll come to pick up the pieces and lower the rates.

    This is what needed to happen to fix the credit problem.

  12. Owner Earnings commented on Jan 21

    S&P 500 Futures down 55 points right now to 1,275.

    HUGE Selloffs occur when markets are oversold…..

  13. Upside commented on Jan 21

    No, in a panic decline, the Fed will act. it will also act because a major market decline will in itself have an economic impact. Will the Fed let the housing market go? Yes. Will the Fed let the housing market AND the equity market go at the same time? Get real.

  14. Upside commented on Jan 21

    “HUGE Selloffs occur when markets are oversold…..”

    Ha!

    I thought “markets bounce when oversold”. Let’s get our conventional wisdom straight, OK?

    We have years and years of data points that say markets rally when wildly oversold like ours was last week. That must mean something else is happening this time.

  15. cinefoz commented on Jan 21

    upside said:

    That must mean something else is happening this time.

    reply: I think the foreign markets are ‘catching up’ with the US markets. Europe looks oversold and will be of concern if the freefall doesn’t stop this week. Asia and emerging markets are finally at trend line lows, or slightly above, right now. To me, this is another sign of an impending bottom.

    I don’t think US markets will fall much in sympathy with foreign markets, although tomorrow might look pretty bad for a while.

    Another couple of weeks will provide the answer. Personally, I see this as a gigantic buying opportunity.

  16. Trainwreck commented on Jan 21

    Dow Futures down 340 points or so.

  17. Steve Bowles commented on Jan 21

    Sorry Barry but the lines on that chart are totally meaningless. The top line is created using a turning point from the downmove to define the upmove (wtf??). Also any trendline without atleast 3 points is meaningless. It takes 2 points to draw aline, a 3rd point where the line holds validates it as a trendline. Calling the arbitry points on that chart ‘trendlines’ is misleading and dangerous.

  18. Chris commented on Jan 21

    The true US stock indices are not pricing right now because the stock markets are closed today. It’s the US futures markets that are down, and this means that as of 5.40am PST, traders are willing to sell the DOW about 500 pts below friday’s close – on a day the markets are not even open!!!!

    This is catastrophic. This price action is even worse that what occurred after 9/11.

    Effect of holiday: Retail investors will panic like its 1929 when the markets open on Tuesday with a huge gap down, which will further the selloff.

    Right now, the markets are in freefall. Price is not responding to any conventional wisdom, whether they be rules of thumb or technical support resistance.

    If the Plunge Protection Team can’t reign this in today and pump the indices back up so we don’t have a gap down on tuesday, then we can kiss it all goodbye and start lining up for bread.

    The fed be damned – monetary stimulus of epic proportions has been pouring over the markets since summer 07. The economy is structurally f*cked, and printing money will not correct that. Goodluck folks – let’s just hope we can end this depression peacefully, OK?

  19. John Borchers commented on Jan 21

    It will be peaceful. Just a lot of people that speculated will be bankrupt. Same as the Great Depression.

  20. davis commented on Jan 21

    looks like a newbie disrespecting chart of the day, a product for many years reproduced around the financial websites because it’s so good, for example they opened the year with our election year chart, which shows a mid feb. bottom:
    http://www.chartoftheday.com/20071228.htm?T
    …the world is down about -5% and we’ll get to see their tuesday action, and it might be amazing if the fastmoney show pundits were correct when they said look for a dow -300 day with a recovery back to green later that same day to mark a tradable low

  21. davis commented on Jan 21

    1255 is limit down on SP futures, got right near there and then bounced to currently 1283 (-42)…due to our holiday the futures all are working on a tuesday settlement, so limit will stay the same til tuesday close…if we could get a limit down, it would be near a major fib for SPX at 1261, range 769-1565

  22. BillD commented on Jan 21

    If we get real panic, I think that we will get a bounce. I just bought back a short Dow emini position for a $5k profit per contract since opening on Tuesday. However, I’m keeping my short NASDQ 100 futures and don’t have much choice about a brokerage account full of puts. If the market starts pricing in a “deep recession” we should go under 11,000 on the Dow. I thought that I would have a quiet and not distracted day working at home on the holiday, but oh well. I’m trying to figure out what the Fed can do tomorrow that they wouldn’t have done in another week to save the market. Would moving cuts up a week really give the market confidence?

  23. Mark commented on Jan 21

    Don’t you sleep? Monday is a holiday!

  24. Suge Knight commented on Jan 21

    Bernanke will cut rates this week between 75 to 100bps, that’s his move.

  25. Eric Davis commented on Jan 21

    If this gets bad we won’t recover for weeks. And it will be a huge blow to the economy…..

    sounds like it will be a long week.

    Or not.

    I’m trying to figure out if uncle Ben studied how to Create a financial panic, as opposed to economics.

    Steep Learning Curve!

    It’s going to be fun.

  26. Aaron commented on Jan 21

    It will be interesting to see if we see any capitulation in the markets in the first couple days of trading this week. Capitulation followed by an intraday reversal could be a short-term bottom, but that will likely need an important catalyst to happen.

  27. Mike commented on Jan 21

    Tues/Wed could be the much anticipated “Wash out” day. So in hindsight, Friday would have been a dandy day for that 1% rate cut. But given Ben’s prior statements to congress on “timing” relief, I’m thinking he doesn’t want to do a “shock & awe” rate cut in the face of an implosion. He’d rather do it to add fuel to a rally. Good luck waiting for that rally at the moment! The Euro/Asian toothpaste just left the tube. Tough to get it back in.

  28. Eric Davis commented on Jan 21

    If we start hitting market breakers…. Guess what Fed Chairman will be packing up his office, Just on the notion that “he didn’t see this coming” or that “it was contained”.

    Also,
    As I try to be politically moderate, and it’s unhealthy to have too much weight on one side of the political scales. You won’t see a republican elected in this country for 8 years.

    My crystal ball, sees the Senate and congress, with pitchforkes and torches…..

  29. ron dunn commented on Jan 21

    It doesn’t really matter what anyone thinks, does it? By tomorrow we will all know what happened, some will be right, some not. But remember, one day doesn’t mean a thing for many of us. Think about it.

  30. Mike commented on Jan 21

    My guess is that this one day is going to mean about -$25,000 to me :|

  31. ron dunn commented on Jan 21

    you apparently made a large speculative bet.
    Hope you could afford it.

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