Is the crazy drop in the DOW last week a signal for things to come this summer?

KenTrester answered 2 years ago …

All of my indicators continue to give bearish readings. Historically, June isn't a good month for stocks, and this year held up that precedent. However, the coming week should have a bullish bias because it is the first week of a new month. The Fourth of July holiday week is also historically bullish.

Still, traditional market indicators continue breaking down. Primarily, I look to the Dow Transports and Dow Utilities, which are rolling over and showing signs of returning to the bearish side. These two sub-indexes have been bullish for the past several months and have provided hope that the Dow might also revert back to a bullish trend. But the converse appears to be gaining the upper hand because the DJU and the DJT are about to confirm another leg down for the overall market.

After easily taking out the DOW11,750 support, the Industrials are now looking at 10,700 as the next line of support. To give you some context, that would represent a return to prices last seen in early 2006.

In terms of finding a bottom, though, there's little evidence that a "capitulation" has taken place. Volatility is nowhere near the levels reached earlier this year, near the end of January and mid-March, specifically. But a swift move to Dow 10,700 would certainly change that. If that happens, then it might be possible to think about a market bottom.

With the likelihood of a steep sell-off still in the cards, that doesn't mean you have to abandon the markets entirely. Look into options as part of your profit and protection strategy. I recommend that option buyers should continue buying puts.