Will this trendline support the market?
The Dow has been in freefall since November of 2007 and the decline of the real estate market. Today the Dow is nearing two critical trendlines, some that will offer support if the market makes use of them but will punish the market severely if the market falls through. Until a confirmation of support perhaps even in a bottoming candlestick pattern or a large uptick after a touch of the trend, investing has been reduced to a gamble. A gamble that the market will not enter the stages of further freefall and hit lows it hasn’t seen since the end of the tech bubble.
A horizontal line of support exists at 9900. With any luck we will not see the market return to this level but rather to the up-sloping line that began in the early 1990s and supported the tech bubble and now sits roughly 600 points under the current level. At the current pace the market still has a few months before it hits this level. But with the losses we saw last week after the first failure of the bailout bill and the general sell off that ensued afterward, to assume that this trendline will be out of reach within the month is ridiculous. Anything is possible in this market climate.
Below these two trendlines there is no support until the 7300 level which would represent a nearly 50% fall from the recent market top of 14200. With any luck we’ll escape that scenario with technical and fundamental support from these trendlines and the current bailout package. Only time will tell how this will all play out.
