DOW Directions 03-17-08 (Monday): A Daily Technical Analytical View of Stocks, Futures, Eminis and Forex for online and day traders.
DIA (Dow ETF): DOW takes additional lumps…more on the way?
Friday’s market gapped up, to start the session, and then dropped an additional -194.65 points to end the session. The market was resisted at the downtrending moving average and we took advantage of the opening above the T8 to short the DOW and to take advantage of the “dead cat bounce”.
The daily StoRSI, our momentum oscillator, has turned down before it has penetrated 
the upper trigger level. This is a negative sign. We now have to look at the downside potential. As we look back to January, on the chart, we see a similar failure for the StoRSI to complete its journey to the upper trigger level. If history repeats itself, we have a long difficult slide coming in the near future (starting immediately and continuing for a week or longer).
The T8 (maroon line), our moving average that defines trend, continues its downward direction. Again, it’s hard to improve on what we stated in the blog last week: “We believe that when price retraces to the T8 (our trend) that there is a high probability that if the trend is down, price will be resisted. That’s exactly what happened on Wednesday (and then agin on Thursday and Friday). Of course, meeting resistance and falling away is never a positive sign. Be careful, downside action could follow. The T8 continues to tell us we are in a steep downtrend.” There are times when it is easy to call the direction of the market, providing you allow the T8 to dictate the direction of the market.
Friday’s candlestick was a “dark cloud”. Dark clouds are directional stoppers. When the market is rallying and a dark cloud appears, a storm soon follows. The market gapped up on Friday and then closed significantly lower. The body of Friday’s candle closed into the body of Thursday’s candle. Usually, it is extremely hard for the market to rally after a dark cloud has appeared. Look for lower prices to start the week.
***Volatility Alert:
During the third week in July, volatility returned to the major stock indices. For approximately four years, the markets have had low to very low volatility. This significant change has ushered in swings of 100, 200 & 300+ points, sometimes on a day-to-day basis. Stock indices tend to be either volatile, or not, for three to five years at a time. Expect continued volatility. The current volatility cycle has just started its volatile period. We feel this is the early stages of volatility and we continue to believe it is here to stay.
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