Friday, August 05, 2011

Dow chart and market prediction. (UPDATE 2)

I have had many readers ask me where is the market headed? Of course, I have no clue, nor does anyone else, as it is all a guess. The more correct answer is that it depends how much manipulation various governments want to use in this crisis. In my humble view, most government leaders are risk averse. They don't want to go it alone, so they try coordinating actions with other world leaders. This crisis hasn't yet allowed the space for this to occur, but I expect some meeting will be held so that various Finance ministers can coordinate an action to calm nervous investors worldwide. But in the meantime, we could have a continued free fall.

In early trading this morning, it is evident this is happening in Europe again today. After the CAC, DAX and FTSE were all down over 3% yesterday, they are down again today another 2% roughly. All eyes are now firmly in place watching us and what the numbers are for our Unemployment rate for July, which comes out in about 30 minutes, as I write this. (Suggest you read yesterday's previous post to see what various numbers should do to the markets this morning) The Dow Futures were down about 50 at about 4:00am PST but have adjusted to now being down only 15 points in anticipation of about a 9.2% Unemployment number coming out in a half hour.

The chart below is of the Dow for 10 years. I have taken the liberty to draw a number of Support levels which show when we go through one, which level is next. You see it is possible in a world where fear becomes to take hold, we could go down and retest the 6,400 level on the Dow which was reached in 2008. I won't go into any theory why this level is important, but a short version is that this level was never retested and many of us thought back then that we could go much lower to say 4,000 on the Dow. So for now, if you save this chart, you should know when we turn back up as one of these levels would hold and the bounce back would come from that point and the previous support level would become resistance on the way back up.

Come back later during the day today as I may update this post several times, depending on today's market action. Thanks for visiting now.

UPDATE #1: 5:35am PST
The Unemployment rate for July came in unexpectedly at 9.1%. Revisions were made to previous months as well, showing more job creation than expected. While very good news for today and the market, longer term the jobs created were relatively meager in the scheme of things. Our economy needs more than 117,000 Non Farm Payroll jobs created. July's job growth came in Healthcare. The Private sector added 154,000 jobs for July. The average work week remained the same at 34.3 hours/week. Average hourly earnings were up 0.4%. The Dow Futures were up 125 points immediately after the news but have pulled back to being up 75 now.

UPDATE: #2 11:05am PST
Well, there have been wild swings all morning, some based on the Unemployment report and some from the problems with Italy's debt and then a rumor floated by the news media, that the European Central Bank will be buying debt directly. What to make of this news is that it is some rumor, some fact, because the ECB has said they are considering this action.

The thing I would pay attention to is the close today on the Dow. Remember yesterday we broke below the 11,500 support level. So it is important to see where we close. Do we have a rally and close over 11,500 on convincing volume or do we close below that level. Right now, there is a battle going on between the Bears and the Bulls. Longer term, I believe the Bears will win this battle and the markets will go down significantly.

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