Breakdown in Dow Jones - 22 June 2009

Yesterday was a big down day in Nifty - Even though Nifty held above 4200, it did close decisively below 4250. And it seems now it is only a matter of time before 4200 breaks and if it does we will enter a deep correction - this was discussed in previous posts in terms of opportunities for positional trading in nifty and you can read about it here.

Now increasing the probability of 4200 being broken is the price action in the US market and I want to analyse that in this post.

On June 22, Dow Jones Industrial Average (DJIA) had a serious break down. The magnitude of the breakdown can be seen in the 5 days chart.



First it broke through 8500-8475 support and then it went into a tailspin breaking 8400 with elan and then resting a while at 8360 before ending the day at 8339 - a solid 2.35% lower ( equivalent to almost a 100 nifty point drop at today's Nifty).




Fine. But where is it - the DJIA - likely to go in the next couple of weeks?


Lets now look at the 3 months daily chart of DJIA. The picture is not pretty. Looks like 8200 is waiting to be broken, if ( and perhaps when) that goes, next two targets at 8000-7800 and 7400-7200. Not a pretty picture at all. It is therefore safe to sell now and safer to sale after 8200 is broken.

Now, what if there is support at 8200? It is important not to be fooled by that and buy around that. It may just be a resting place. Looking at the chart it seems that only if DJIA closes above 8900-9000, do we have a chance to arrest this downturn. The probability of that happening - I am sticking my neck out here - is quite a bit less than 50-50.

All this increases the chance that Nifty will go down now and stay there for sometime ( a few weeks, if not months and not a few days) - in other words this is likely to be a deep correction in Nifty.

For myself, I had a bad day yesterday; made some mistakes for which I paid yesterday and may pay dearly today also. More of that later. Stay Tuned.

If you have any comments please write to me at stockmarket.methods.in.madness@gmail.com

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Disclaimer: The above analysis is just that - my analysis. If you choose to trade on the basis of this analysis, you will be solely responsible for the outcome of the trade - profit or loss. Please keep in mind that trading and in particular day trading is not for the novice and there is significant risk of loss of capital in trading.