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Channel Break–Meaningful? – Dr. J's Market Thoughts Press "Enter" to skip to content

Channel Break–Meaningful?

In the last post, I pointed out some places that were important.  Well, today the stock market dipped below the prior low from October 11th but recovered.  The teal dotted line that represents the 61.8% Fibonacci retracement level of 2018’s low to high prices stopped the market in it’s tracks and reversed for a very nice oversold rally.  Price closed daily below the 2016 channel however, so that is a negative.  The 50-day (teal) and 200-day (yellow) moving averages are now sloping downward and price closed below both of those key averages.  Remember, nothing bad happens when price closes above a rising 50-day moving average.  We aren’t there, and haven’t been there since early October.  That is when the caution flags were waved for the short and intermediate term in this blog.  This blog also warned about buying this dip prematurely.

At this point, a daily closing below today’s low is a warning sign that (much) lower prices are possible.  That was the last nearby level of support I can point to, so any close below that level on a daily chart should be taken very seriously.  Those readers that are subscribers know about the “buy the dip” rules and the remainder of October is still in that class below a certain price subscribers should know from a protected post.  The 2016 trendline is very important.  On a weekly chart, we have NOT been below, nor closed below that trendline since it started until price poked below and recovered on 10/11/18 and 10/23/18.  If we close Friday below the 2738 S&P500 level, an immediate rally would be needed to prevent many mechanical trading systems to decide this market is finally in trouble.

The next level of support the market could offer if the channel is lost would be the February 2018 lows near 2530.  That level is 7.5% below today’s closing price.  Do you now understand why the market is trying to claw and hang on to that channel and why buying any dip prior to the 2018 lows could be dangerous to your financial health?