Saturday, May 8, 2010

An Important Message Contained In the Market's 1000 Point Sell-off

On Thursday, the market dropped 1,000 points in a relatively short amount of time. Just as quickly as it had dropped, it rapidly regained two-thirds of what had been lost in an equally short amount of time. The rapidity of the down, and then up moves, could have only been done by pre-programmed, computerized trading.

The Dow Jones Industrial Average of 30 stocks hit a low on Thursday of 9869.62. Apparently, from that point or slightly above that, buying started to halt and reverse the downdraft. To me, that means, that more than a few computerized trading programs are set to buy at that level. From that information is a very important message. The sudden reversal indicates that we are probably going to go down to the 9869-ish level, once again. If I'm right, then that will be at the bottom of this current correction. In trading circles, this is referred to as re-testing the lows.

Now, I may be all wet because the program trading systems might be re-adjusted in the meantime to some other lower or higher support level; but, I don't think so. Therefore, I am predicting that the Dow Jones Industrial Average will continue to sell off by another 500 points in the next week or two before stabilizing. From there, it will probably move sideways until the European situation is fully understood. But, I would also caution that if the "Dow" breaks through the 9869-ish level, we could see another 1,000 point drop from there on.

Of course, as usual, this is just my opinion. Reading "tea leaves" is always an art and never a science.

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