I've been following the Mortgage Meltdown quite closely, and have posted things here on days when I wanted to hear from the Kossack Community.
Today is another one of those days. While I'm no Warren Buffet, I consider myself a novice chart reader. And to me, there's nothing but more trouble once you look at this graph:
See that yellow line? That's the 200 day moving average. Today, we "bounced" up off the resistance level, but with the continuing bad news, the bears are poised to take the day.
FYI: A "moving average" is the average closing price of the stock/index (in this case the DJIA) over the past 200 days.
As MoneyCentral says:
When a stock’s current price breaks below its average price for the past 200 days, it is considered to have broken its long-term trend. This is bearish because it means that every new buyer of the stock is willing to pay less than the average price paid for the past 200 days.
Market observers who believe that they can foretell the future of a stock from its past price movement are called "technical analysts" or "technicians." They believe that the 50- and 200-day moving averages form lines of "resistance" that are difficult for a stock to penetrate on the way up. Once the battle between a stock’s bulls and bears at these lines of resistance is lost by bulls, technical analysts believe that stocks have a clear shot at sinking toward new lows.
Other important indicators for the "technicians" are the 20 day and 50 day moving averages. The DOW is currently waaaay below those.
The last time the Dow was even close to its 200 day moving average was about a year ago. The Dow hung around this resistance level for some time, then continued its journey to 14,000 (only what 3 weeks ago, right? Seems so far away...). Also, when we were at this technical level before, it was before you had mortgage lenders stocks dropping 20% in a day, or filing for bankruptcy, or funds refusing redemptions because of lack of money, or the Feds injecting billions of dollars of liquidity in to the market.
So fellow market people... what do you think? Will the DJIA crash and burn through the 200 Day MA? And if so... where does it end?
For a "sneak peak" (though it doesn't always hold true), check out the Asian Stock Markets later tonight for a preview of what tomorrow will bring.