Happy Halloween everyone! I don’t want to scare you or anything but it seems that there could be another blood bath in the US market at least from a technical perspective. Let’s now take a look at the Dow Jones Industrial Average (DJIA).
As you can see from its chart above, the ^DJI or simply the Dow had already broken down from a bearish head and shoulders formation and more importantly from its long term uptrend line. A combination of weakening US economic data, US debt problem and the fiscal crisis in the euro zone have shackled the US equities market to its knees. From a peak of 12,876 last May 2011, the DJIA had found itself to a low of 10,500 last month. Although news of improving business conditions in the country plus the agreement on how to shore up the financial situation in Europe has pushed the index to rebound to a high of 12,284 just the other day.
However, things now could turn sour again as the index finds a resistance at the neckline of the head and shoulders pattern. If it is not able to keep itself back above the said neckline in the coming days or weeks, then it is likely to revisit at least the 11,500 area again. In my opinion, this recent rally has given us a window to liquidate our long positions and stay liquid. From a technical point of view, the probability of the index turning bad again remains high therefore I think that it is more prudent to at least lighten up on being long or to even turn to cash. But that’s just me. If things turn good and the index manages to streak past above its all-time high then I would only lose this opportunity rather than continue to bet now and risk losing money.