MARKET COMMENTARY

The 241 points drop in Dow erased all the gains made on Friday. Yes, the lack of volume on Friday failed to propel the stock markets higher on Monday. In fact, it is more likely that the market may continue to go lower, instead. The daily chart has failed to provide more meaningful information about the market for now. As I checked the daily chart, something is revealing there.

The weekly chart shows a very clear bearish market for Dow. The bullish period for the past eight to ten weeks was seemed a mere retracement of the declining trend. If Monday drop is an indication of the resumption of bearish cycle, we can expect the market to fall below 11000 this time, regardless of any positive or negative news which may arise. As a matter of fact, this is not very far away from the current level of the Dow at 11,386 which is a meager 386 points. Similar chart setup also occurred in the S&P 500 with critical support at 1225.

Bear Put spread - a debit spread - with at least two months of validity is a very profitable strategy to apply to these charts. Straight put is also applicable but you must be able to stomach the retracement on the way down.

DJIA Weekly Chart

The weekly Russell is a range trading pattern. If this is true, we can expect the index to sink all the way down to 650 support. In this case, bear call and bear put are equally attractive.

RUT Weekly Chart

As we have discovered last week, the Nasdaq was forming a solid, big triangle. With the plunge of the index on Monday, the downtrend line is as strong a resistance as rock. However, it is coming near the end of the setup. A breakout is imminent. Without any fresh impetus to boost the market, Nasdaq can begin to trend sideways.

NDX Weekly Chart

 
STOCKS TO WATCH:

Financial stocks - for bearishness.

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