Starting off looking at the DJT index to see if there are any signal from the Dow Theory, and the answer is no. Next, looking at the daily chart, I see the price has broken the support level near 9757 and dropped into the Fibonacci retracement zone (shared area between 38.2% - 61.8%) to the 50% range. In addition, the price has also reached the 141% of the near term Fibonacci extension. The 50% retracement and the 141% extension provided a confluent that could trigger a dead cat bounce back to the region between 9420-9757. If a countertrend-rally does not occur near this confluent then I will be watching for support near the 161% extension or the 61.8% retracement near 8600-8400. If neither of these scenarios play out, then the key level to watch will be 8171.93.
To continue my analysis, I will turn to the DJIA to see what it might do. First it also has retracement into the Fibonacci retracement zone. Unlike the DJT, it only retraced to the 38.2% level and appears to have tagged a support level near 22413. Furthermore, it has reached the 161% of the near term Fibonacci extension. Similarly to the DJT, the Fibonacci retracement and extension are in confluent and could provide the trigger for a dead cat bounce near the current level back to 23242-23881 range. Alternatively, if a bounce does not occur at the current level, then I will be watching for possible bounce off any one of these potential support levels; 22179, 21681, and 21169. The 21169 level is a key level to watch as it is in confluent with the 200% Fibonacci extension and 50% of the Fibonacci retracement.
From the two Dow indexes; the transportations and the industrials, we see the possibility of a dead cat bounce in the near future back to the levels where these indexes have broken down from. Moving onto the SP500 (SPX), it too has moved into the Fibonacci retracement zone and near the 50% level. Also it is near the 161.8% near term Fibonacci extension and getting close to a potential support level near 2400. Similar to the DJIA and the DJT, a confluent around these levels could trigger a dead cat bounce back to the 2532-2583 area. If the countertrend-rally does not show up here, then I will be watching for a move toward the 61.8% retracement level and the potential support level near 2300 for possible support.
Turning to the tech dominated index, the Nasdaq 100 (NDX), it also show the price has dipped into the retracement zone, but not sitting near any of the retracement levels. It is currently sitting in between the 38.2% and the 50% retracement level, and near the potential support level of 6012.95. For the Fibonacci extension, it is sitting in between the 127% and the 141%. Unlike the DJT, DJIA and the SPX, the NDX does not have any confluent at work. Instead, it appears to be respecting the prior support turned into resistance levels. Therefore, I will be watching for this index to make incremental move back to the resistance levels above current price if a dead cat bounce appears. Otherwise, I will be looking for it to continue to move lower and test the potential support levels near 5895 and 5717.
Finally, looking at the small cap, the Russell 2000 index (RUT). The RUT has dipped below the 50% Fibonacci retracement level and sitting right above the 161% extension. It too could experience a dead cat bounce from the current level back toward the 38.2% retracement near 1436 and 1459. If it doesn’t bounce at the current level, then I will be looking for a possible bounce off the 61.8% retracement near the 1263.5 support level. Otherwise, the key level to watch is 1190.20 near the 200% Fibonacci extension.
There you have it. The indexes are all near a potential countertrend-rally level. Whether the indexes will bounce or not off these levels, the trend is biased on the downside. Until some stabilities have been re-established, I will continue to be on the cautious side. I know the recent selloff is not very pleasant for most, including myself. We all have experience some degree of drawdraw, especially in our long term account. But like everything, all things will past, including this selloff. Just be careful, be patient, and enjoy the holidays.
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