Updated Thursday, 10/9 for Friday's market.
Key DOW Levels for 10/10
UP None
DN None
Late-Day Collapse..
Dow consolidates throughout session, drops sharply to the Close.
From prior commentary, "...We will watch 9,200 and 9,600 for a solid breakout tomorrow. Such a breakout could spark the next 500 point move..."
The Dow opened the day fairly quietly this morning, as the index consolidated near the 9,200 level throughout much of the session, seen in the 15 and 60 Minute Charts. However, the index eventually got a big break away from 9,200 and dropped sharply through 9,000, setting the stage for a 679 point loss. The Dow closed the day at 8,579 and is just a stone's throw from our 8,400 target.
The Weekly Chart shows the Dow has continued to fall extremely sharply out of the large triangle pattern that formed over the first half of the year. As we mentioned before, this triangle forecasts a target of 8,400 and is now very close to reaching this target. The ease with which the index has sold off could easily carry the index back toward critical 11-year support at 7,500. This could be the level that finally ends the capitulation and sparks a gigantic rally. First, however, we must see how the index reacts at 8,400.
After such a major sell-off, we usually see a reaction rally. Watch 8,825 for signs of a near-term bounce tomorrow. However, continued overall selling pressure is likely to occur beneath 9,200.
Short Term Dow
The Dow closed the day beneath late-day resistance at 8,825, seen in the 5 Minute Chart. Watch this level closely for early direction.
Medium Term Dow
In the medium term, we entered the market Short at 9,175, but stopped out with a loss. We later re-entered Short at 9,142, but the trade was closed out at the entry due to the Breakeven Rule. We are out of the market and will hold off on new trades at this time.
NASDAQ & S&P
The NASDAQ and S&P each broke through the bottom of their respective consolidations this afternoon, which sparked heavy selling this afternoon. Look for more overall selling, but watch for a potential reaction to the upside tomorrow.
Summary
The Dow consolidated throughout the session and eventually got a big downside break late in the afternoon that sent the index into a downward spiral. The index bottomed out below 8,600 and could be headed to 8,400 by week's end. Look for a potential near-term bounce, but for continued overall weakness to be seen.
Thanks for listening, and Good luck in your trading!
Ed Downs
edowns@nirvsys.com
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