Global stock - Approaching the 8,000 flashpoint

Crucial support at 8,000-8,100 for DJIA. The DJIA fell by as much as 11% from its Jan 07 peak of 9,087pts in the last eight trading days, catching many, including us, by surprise. The index tested the crucial 8,000 support level last night before a rebound kicked in to help the DJIA close just 12pt higher at 8,012.

Wave “5” down leg has kicked in? Failure to hold above the crucial 8,000-8,100 support level would be bad news and would probably confirm our view that the preferred wave count is taking place. This is the wave “5” down leg from the 7 Jan 09 peak. If wave “5” has already started and assuming that wave “5” equals the length of wave “1”, the DJIA could hit 6,600 before bottoming.

Rising volumes not a good sign. Trading volumes for DJIA stocks have been rising in the past 1-2 week, which is not a good sign. Furthermore, the daily chart shows two bearish patterns – a bearish rising wedge and a descending triangle formation. Based on the triangle formation, the DJIA’s eventual target is 6,600, similar to our Elliott Wave projections.

Alternative wave count still possible. Our alternative wave count is still possible if the DJIA can hold above 8,000-8,100. Worst case scenario, we see a double bottom for this alternative wave count. But we think even this would be a challenge given the negative signals that the technical indicators are throwing.

World Index breaking down. The MSCI World Index’s 50-day SMA support line at 220 has just given way. Since mid-07, the index has broken below the 50-day SMA three times, usually followed by a 2-3 week correction phase.

Asian index breaches 50-day SMA. The last time the MSCI Asia ex-Japan Index (MAxJ) broke below its 50-day SMA was in Jun 08. This was followed by a major decline to the Oct 08 low. The MAxJ is likely to at least test its Oct 08 low if this downtrend continues before Asian markets bottom.

Sponsored Links