Charting Stocks

Dow Jones in danger of breaking below 6,000 in 2009.

In our forecast for 2009 we mentioned that the Dow Jones could break below 6,000 this year. The probability of our prediction being correct was elevated last Monday as the Dow Jones closed below the 2002 lows. We took note of the bearish close but also pointed out that it is the Friday close that we are most interested in and mentioned that the Dow would need to stage a significant rally by Friday.

News of the Citi takeover rattled the markets and the Dow Jones fell further by weeks end closing at 7,063 which was the lowest closing price since 1996. The odds of the Dow Jones  challenging the 6,000 level has increased greatly.

The chart below illustrates the bearish close.

In the next chart we use very long term Fibonacci Retracement levels to arrive at a price target. We’ve used the 1982 low and the 2007 high as the 0% and 100% levels. The next likely level is closely below the 6,000 level. We should point out that this is a very long term view and while we believe the Dow will reach and break  the 6,000 mark during the year, the market is extremely over sold on a near term basis  may very stage a counter trend rally before reaching 6,000.

Related posts:

1. Dow Jones: Rally Losing Steam
2. Stocks: Oversold Rally Will Soon be Tested
3. Dow and S&P Close Below 2002 Lows
4. Beware of the “Sucker Clause” Rally
5. Charts of the Week