Aug 21, 2011
The Dow continued to slump last week amidst worse than expected economic data and global debt issues, retreating 451 points on a week on week basis.
Yes, this bear market isn't just about the credit rating downgrade by Standard & Poor's anymore but also about economic data collapsing back down to about 2009 levels once again. Yes, the US economy is suffering in its path to recovery as financial issues globally and locally hit its economy. However, this phenomena is not a new one as almost all recovery phase enters such a period of uncertainty and retreat from overly optimistic outlook coming from the initial phase of the recovery. We saw that same pattern back in 2004 and 2005 coming off the initial strong recovery in 2003. Yes, this also means that such uncertainty could last a year or more until all the toxic waste of the crisis is totally drained from the economy can a new bull trend start.
On the technical front, the Dow is back down to its 200WMA on the weekly charts. This is an area of strong support/resistance and we could see the Dow recover slightly this week before hitting Thursday's Jobless Claims and Friday's GDP. This is also an extremely dangerous area to close below. As we can see from the past, everytime the Dow breaks below its 200WMA, it goes downwards a lot more. As such, if the Dow fails to hold up at this level, then we would see a good down leg for put options trading.
