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Could This Be The Begining For The Down Jones?



August 04, 2011 – Comments (2) | RELATED TICKERS: DXD , SDS , QID

The Dow Jones Industrial Average(DJIA) and the rest of the major stock indexes are having one of the steepest one day declines since the May 6, 2010 flash crash. At this time, there are many selling signals that have triggered. Everyone is talking about the big head and shoulders top pattern that triggered two days ago on the daily chart. Other investors are talking about the Dow Theory sell signal that triggered yesterday when the Dow Jones Industrial Average and the Dow Jones Transportation Index made new lows. Yes, this market looks to be in trouble and the upside looks somewhat very grim.

The only positive sign for these markets is that they are very oversold. Often oversold markets will usually have a dead cat bounce. It is important to note that the Dow Jones Industrial Average has decline by 1200.0 points in just eleven trading sessions. This is a massive decline in such a short about of time. At the moment, the Dow Jones Industrial Average is testing it's March 16, 2011 low at 11,555.48. If this level fails to hold over the next couple of days the DJIA could plunge even further.

There are a lot of problems facing the stock markets. First, the U.S. Dollar Index is surging higher this afternoon. As we have seen throughout the past ten years, when the U.S. Dollar Index inflates the major stock and commodity markets deflate. Second, there are likely to be a few large financial institutions that are severely underwater at this time. These firms will have to liquidate and unwind their positions causing additional selling pressure. Just look at gold and silver today, these precious metals have staged sharp reversal days. When the precious metals decline it is not just because of margin rate increases, it is usually because some big hedge funds need liquidity to survive. Third, the debt problems in Europe continues to grow by the day. The problems started with Greece and it is now in in Ireland, Portugal, Spain, Belgium, Italy, and possibly France. Germany can't keep the European Union up by itself. The problems in the European Union is systemic and it is starting to be realized by investors around the world.

Often when panic starts to set in it is usually a sign that a low is close. That might be the case for the short term, however, the long term problems will continue. The Federal Reserve and other central banks will certainly try and get creative in the near term to try and prop this mess of a market up. We can only guess at how much of an effect they will have. This market is going to be very volatile for the rest of the year. All investors will be watching the U.S. Labor Department's July non-farm payroll report very closley tomorrow. 

Nicholas Santiago

2 Comments – Post Your Own

#1) On August 04, 2011 at 3:59 PM, outoffocus (22.81) wrote:

Did you mean to say "Down Jones" in the title?

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#2) On August 04, 2011 at 4:09 PM, edwjm (99.88) wrote:

Freudian slip, perhaps?

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