The Dow Jones Industrial Average s selloff on Monday puts it on track to make it unanimous: All Big 3 market indexes have now produced the bearish pattern of lower lows and lower highs, suggesting that the stock market may be in a downward spiral.
There are some who say that the market remains a bit too quiet for the current lows despite the volatile movement.
The Dow DJIA, sank 653.67 points, or 2.0%, Monday to close at 32,245. It has fallen below the March 8, 2022 close of 32,632. It posted its lowest finish since March 9, 2021, as it posted its lowest finish since March 9, 2021.
The Dow saw its second lower close for chart watchers since it closed at a record 36,799. The March 2022 low was below the Jan. 27 close of 34,160, as the March 2022 low was 65 on Jan. 4. The March 29 closing high of 35,294 was the result of the fact that each successive bounce off those lows petered out below the previous peaks. The March 19 close of 35,768 was just below the February 9 close of 35,768. The Dow has seen lower peaks and lower troughs since it began on 06th.
A pattern of lower highs and lower lows is what defines a downtrend, based on the Dow Theory of Market Analysis, which has remained relevant for Wall Street chart watchers for over a century. The Dow industrials matched the downtrend confirmed by the S&P 500 index SPX on April 29, when it closed below its March 8 closing low.
The Nasdaq Composite Index COMP had already confirmed a downward trend on April 26, when it closed below its March 14 low.
The S&P 500 backed up its downtrend with a five-week losing streak through Friday, only the ninth time the index has done that since 1992.
Frank Cappelleri, technical analyst at Instinet, wrote in a note to clients that "continuing weakness like this has been a harbinger of additional selling in the months ahead more often than not over the last 30 years."
Mike O Rourke, chief market strategist at JonesTrading, said the volume over the past two weeks is unimpressive relative to the volatility and weakness. This equity market appears to be very far from any type of capitulatory mindset. The Dow was down based on the rally off the Pandemic closing low of 18,591. 93 was recorded on March 23, 2020 and the Jan. 4, 2022 record close of 36,799. It broke below the first Fibonacci retracement target of 23.6% at around 32,503, below the first Fibonacci retracement target of 23.6%. The next retracement target, 38.2%, is around 29,844, which would mean another 2,402 point drop from current levels. Read more about Fibonacci retracement targets.
The next Fibonacci retracement target for the S&P 500 is the 38.2% retracement of the post-pandemic rally for the rally off the March 23, 2020 low of 2,237. The next goal is to have a 50% target at 3,517.
The index is close to the 50.0% Fibo target of the rally off the March 23, 2020 low of 6,860, according to the Nasdaq. If that is broken, the next Fibo is the 61.8% target at 10,374.