Breaking below 10697 which was an important level, the Dow reached a new 11 month low at 11365. The situation is such that we may now be looking at further falls to follow as the monthly chart still shows sign of a bearish pattern.
With the RSI indicator still below its reference line and also a new monthly low, it seems that the overall bearish trend has not changed and the bulls will have a tough time to turn things around for the moment. As more bad news hits the markets each week with the focus on failing banks, we are left wondering how bad can this really get?
From a pattern perspective it still appears that the market is forming a final five wave which could terminate at the 9870 Fibonacci 62% retracement level. If this area does not hold then further levels come in at 8900. From a historical perspective we had experienced much sharper declines in 1987 and 1914 and although this looks painful at the moment we are nowhere near the capitulation type of declines experienced in the past.
For the short term we will need to see the Dow climb above 11175 to turn bullish and a cross higher on the momentum indicators. Otherwise counter trend rallies will be an opportunity for the bears to take control again to push this market lower.
Having passed a time frame for a potential turn, it now looks like we could see a low between the last week of October to the mid November period. The concern is at which price level will the market make the low? If we can hold on above the 9870 level we could be in a potential bounce mode and if all else fails this is going to be a scary ride ahead.
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.