► TTT-Team / Donnerstag, 06.10.2005

Steady Continuation

Dow breaks consolidation to downside, continues steady decline.

The Dow opened the session lower today, but used most of the day to form a large triangle consolidation at the lows before extending its decline another 124 points, as seen in the 15 Minute Chart. The Dow broke the consolidation to the downside at 10,380, which gave the index enough momentum for a critical break at major support at 10,350, seen in the Daily Chart. The fact that this level has finally been breached in major fashion does not bode well for the Dow.

First, the sheer fact that the Dow has breached 10,350 in decided fashion easily implies movement to the next major support level, which is 10,200, seen in the Daily Chart. However, the fact that the Dow has now broken the six month uptrend indicates that we could see 10,000 as well, which happens to be the lows for the year.

Now that the Dow has reeled off a huge downside break, we can revisit a three year view of the Weekly Chart. We've mentioned before that this chart had been developing in the form of a massive head-and-shoulders pattern, with the head being at 11,000. The downside break through 10,350 is the first sign of major, long term weakness. However, should the Dow break through the neck line at 10,000, we could see a massive sell-off ahead of us, likely to 9,700, but possibly lower.

In a more near-term sense, look for the Dow to pull-back from the lows and possibly form a consolidation at or around the 10,350 level. The index may hold near this zone for a while before another big move is seen. An upside push back through 10,400 will indicate a much larger reaction.

Short Term Dow

The Dow has formed a steep upper trend line across the highs of today's late-day decline, seen in the 1 Minute Chart. A push through 10,340 will indicate near-term strength tomorrow morning.

Medium Term Dow

In the medium term, we are still Short the Dow from 10,520 and currently have 203 points in the trade. We will move stops down to 10,400 for tomorrow's market, but will hold off on additional Shorts. We will watch 10,425 for new Longs.

NASDAQ & S&P

The NASDAQ and S&P each formed bearish continuation patterns today, which led to another round of selling. Look for another consolidation to form tomorrow.

Summary

The Dow closed the day at the lows of the session after breaking through the critical 10,350 support level. The index does not look in good shape in a longer term sense, but we could see a nice intraday bounce tomorrow.

Thanks for listening, and Good luck in your trading!

Ed Downs
edowns@nirvsys.com

with assistance from..
Frank Ochoa, Sr. Market Analyst
fochoa@nirvsys.com

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