In the previous report a key support level was highlighted at 11,037 which if violated “could set the stage for a decline.” This scenario has played out as expected and the sharp decline should not have been a surprise for chartists.
Right now the key focus for traders is immediate support levels. In light of the recent events we can expect further volatility to continue but also an acceleration of a further decline may be at hand. The trigger will be if we see the Dow take out the important July low of 10,827.
Of course technical momentum triggers had uninitiated sell signals across right across the short term to longer term time frames as indicated by the RSI index. Once a signal occurs on a larger time frame in this case a Monthly chart which occurred in June, this can have a big impact on the market s we have witnessed.
However compare the current decline to the 1987 and 2000 falls and we can ascertain that the magnitude is nowhere near the previous moves. Currently the index is down -24% compared to -41% in 1987. But the effects of the current situation will most likely be felt for years ahead.
Right now for a turnaround to the upside the Dow will need to climb above 11,470 to retrace an upside move. Otherwise continue to monitor the 10,827 low to carry the index lower to the 10,700 level and possibly lower.
Longer term support levels are much lower and we could possibly see another -10% shaved of current levels. Time analysis points to September 22nd and also mid November as possible low points.
Until we see confidence and buyers come back into the market, the bears have full control for the now.
Sandy Jadeja is Chief Market Strategist for ODL Markets and founder of www.Spreadbettingtowin.com where he teaches low risk trading strategies and money management.