Dow just broke through 2002 lows -- where will it find support?
Answers
3963 points
MNSL answered one year ago …
It is very difficult to forecast now. Even it can go below 3000 level if investors become panic. I think even option market will dry up sooner than later.
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178 points
KenTrester answered one year ago …
This past week saw the Dow Industrials (DJI) battle to hold support at 8,000. That battle was lost, and 8,000 has now become a new resistance level. The trading range that stocks have been in since early October has also been shattered to the downside.
The battle of all battles is now underway in the Dow 7,500 to 7,800 area, which marked the lows during the recession earlier this decade. And it’s anyone’s guess how low the Dow will go if that support doesn’t hold. Things could get very, very ugly.
While bear market rallies can come out of nowhere, any rally will be short-lived.
Almost needless to say, option buyers should continue to focus on buying puts. Look forward to rallies to buy those puts at cheaper prices, bit don’t mistake rallies as a reason to buy stocks. There is still way too much danger on the downside, and any longer-term turnaround will take enough time to get established that there is little danger of missing the boat.
244 points
KenLong answered one year ago …
From a long term chart I would say we've just completed the head of a major head and shoulders pattern on the Dow. The Dow and S&P could find support in this area, however the other indexes havent reached the same level yet, so there could still be a little tug of war and retesting as we find support.
From here I suspect a good rally, enough to trick the value oriented investors back in before the next big leg down. That one should be the crusher that drives investors completely out of the markets and sets us up for a slow recovery.
If this low holds, a 62% retracement would take us up to 11500, just about the top of the 99 highs, thats about the maximum I expect. Shallower retracements at 10000 and 10800 are certainly posible, but it is the full ephoria that I am looking for.
Technicaly, a fall equal to the rise should be possible. A 62% extension from the highs of 00 to the lows of 02 would take us down to 4600, right in the middle of my target area, and a visualy equal distance. This move should take a couple of years. If it happens quicker I expect a deeper fall, down to 4000, and if it takes longer I expect a shallower fall to 5000.These numbers would put the Dow on line with the long term trend coming up from the 30's, wich is my ultimate target.
As with all prediction, its only hypothesis, and not something to bet the bank on. However it is good to be aware of as a cautionary note.
I think the rally up from here, once things stabilize a bit, will be fantastic for those in it early enough, and the subsequent decline will be equally magnificent for those who anticipate it. If this comes true it could destroy a lot of investors and put a lot of people out of the markets permanently.
731 points
thinker70 answered one year ago …
The bottom for the Dow is anyones GUESS!
It depends on numerous factors: 1) the ability of the majority of consumers to afford the things that the industrial firms produce; which in turn depends on how high the unemployment rates go; which in turn depends on corporations ability to survive the current downturn in the economy, without laying off dozens, hundreds, or thousnds of people depending on the size of the company!. Capitalism by its very nature goes in CYCLES and when we have a deflationary cycle to in effect BALANCE out the excesses, the smooth functioning of the economy is disrupted.
For example: when there is TOO LITTLE money available to purchase production then the economy stalls, (deflation)but when there is TOO MUCH money then you get inflation, as the value of existing dollars gets diluted it requires more of them to buy the sme goods! Prices may also fall when there is EXCESS purchasing power avaiilable, giving buyers the ability to bid down prices and withhold purchasing until they get the price they want! Ideally the amount of money in circulation should be EQUAL TOO and determined by the PRODUCTION (GDP) of the country!
The basic problem is that under the Federal Reserve Act (Central banking fiat currency system) our money supply comes into existence as a DEBT that must be repaid with interest! Since the interest is NEVER CREATED there is a constant ebb and flow of actual purchasing power available depending on the level of new loans being made, which in turn is dependant upon two things 1) Bank reserves that determine the allowable creation of new money (loans) and 2) available collateral against which to make SAFE loans that assure recovery of the original principal AFTER interest is extracted!
A steady state economy is not possible under a fiat currency debt based system because the payment of interest DEMANDS a steady stream of new borrowere to maintain enough liquidity in the system for an economy to function! It would be quite accurate to say that it is the mother of all PONZI schemes and history shows that fiat currncies eventually "self destruct" just as pyramid schemes eventually do, when there are no longer enough entrants to support those already in the scheme. YES pyramids wrk for a period of time, and those at the top get RICH at the expense of the masses who pile in without understanding how the system works.
