Market Set To Head Lower? A Technical Look ~ market folly

Friday, December 18, 2009

Market Set To Head Lower? A Technical Look

Late yesterday Adam put out two more technical analysis videos taking a look at the broader picture by examining the Dow Jones and the Nasdaq. Let's first start with his video on the Dow Jones Industrial Average. He uses two technical tools first by simply drawing a trendline from the highs in 2007 and you'll see on the chart that we are currently bumping right around that downtrend line which should serve as resistance. Things become even potentially more negative on a technical level when he lays out a fibonacci retracement and we see that we are also right around the 50% retracement, typically a very strong level in terms of resistance or support (and in this case, it's resistance).

Lastly, couple this with the fact that the market has been trading sideways in a box for the past month and you've got all the components for a large move coming. Adam thinks this consolidation will lead to a move lower in the markets. He points to the divergence in the MACD as cause for concern. The MACD has been downtrending for the past month or so while the market essentially trades sideways. Such a divergence does not typically signify good things to come. Either way though, just play the trading range we've established in the Dow Jones. If it breaks out above the 10,500 level then it's probably heading higher. However, if it breaks down below support around 10,285 then watch out below. And if we break lower, Adam has set 10,100 and even 10,000 as downside price targets. Click the chart below to see his technical analysis on the stock market.

Secondly, he also analyzes the Nasdaq in his other video. By drawing the fibonacci retracement tool again he says we're now in "thin air" in the Nasdaq as we float between the 50% retracement and the 61.8% retracement. He thinks that the longer the Nasdaq dawdles in this area, the weaker it gets. Adam highlights 2,059 as a very key level in the Nasdaq as it is the major support level from last month. If the Nasdaq breaks down below that level, then watch out below. Check out the rest of Adam's thoughts on the Nasdaq.

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