With the recent crash and sell off one wonders how far Dow Jones can fall. Let us take a look at what the chart is telling us on the possibility of Dow's collapse.
Chart patterns can be very helpful to pinpoint to us the extent of this sell off. When we study the chart of the Dow, it really tells us that there is a lot of weaknesses in the Dow and this index is likely to fall further.
The above is the daily chart of the Dow Jones.
You will notice a few things:
All these are bearish technicals rearing its head to tell us that there could be more selling.
How do we get a possible target?
Well I would like to take a measured move approach. Some traders may see the pattern as a bearish flag to get a possible target. So if we take the measured move approach we might get a target of around 24000. But with a bearish environment, it is very likely that the selling may continue down to February 2018's low of around 23400.
To get the big picture, let us have a look at the Dow's weekly chart. The stochastics tell us that it is forming a railroad track that still has some way to go before getting oversold. It is possible that it will get oversold when it reaches the support area.
So, when that happens, we will see if there could be a bottoming process forming.
The Nasdaq Composite also tells us the same story as the Dow. It has a bearish cross and has already broke below the 200 MA. A possible measured move target will be around 6840.
The S&P 500 also tells the same technical bearishness as the Nasdaq and Dow. The futures chart show that it formed a topping tail yesterday and has fallen below yesterday's low. So it is possible that more selling will happen today.
Notice how the sell off started with the S&P 500 breaking below and uptrend line and slashing through the 50 MA.
A possible target for the S&P 500 will be around 2600.
I always like to use the 60 min chart of SPY to gauge the short term movement. Notice how the SPY is below its declining 60 min 20 MA, 50 MA and 200 MA. This tells us that the picture is bearish at the moment.
SPY is also in a 60 min downtrend making lower highs and lower lows. A break below yesterday's low will send the market lower.
The charts of the 3 major indexes are telling us that there is a lot of weakness. Therefore, one should be very cautious in this environment.
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