Dow Jones continues to test key support levels

By Sandy Jadeja 09:55 24- Feb -2009

The expectation of a breakout has now occurred and this has been to the downside. This places the Dow Jones index in a very bearish position.

Having broken below the 7449 low the index quickly found itself sliding lower to the October 2002 low of 7197. This has now seen the Dow eradicate seven years of growth in less than two years. This tells us that the overall move to the downside is clearly impulsive which means that the downside is not yet fully complete.

On a monthly basis the index looks parabolic and often these types of moves are precursors to a sharp reversal. The question becomes when to expect such a reversal. Until we have seen a capitulation type of event the chances are that there is probably more downside yet to come.

A Fibonacci extension from the 2002 low to the 2007 high provides a low target of 5293. However we do have a level forming at the 6400 level that could help support the index for the near term. At present we need to see if the Dow Jones can hold the 7000 level for a short term rally.

If a rally I to take place then the index will really need to climb above 7470 on a short term basis and followed by 9137 for the longer degree trend to change. The momentum index which provided a Sell signal has seen the Dow fall by over 1400 points and rewarded the bears handsomely.

Although the momentum index is sharply lower we note that it is still not deeply oversold as yet suggesting the downside move has further to go before a firm low is in place.

Until we see higher highs and higher lows. The trend is in control by the bears.

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.