Dow Jones 50% Fibonacci Retracement Test
Dow Jones futures are currently locked limit-down as trading was halted after a -954 point drop at the open of trading. Price fell -5% to a new selloff low of $18,086. Price as now fallen nearly -40% from the all-time high in what continues to be the fastest and steepest stock market decline on record.
Price is now testing the 50% Fibonacci retracement level after falling below the lower line of the broadening wedge pattern which failed to act as support and is a bearish technical breakdown. The 50% Fib level represents the halfway point between the 2009 global financial crisis low of $6,460 and the recent all-time high of $29,543 made in February of this year. Should price fail to hold above the 50% Fib level, which looks likely given that we have yet to see the worst of the coronavirus pandemics economic impact, it would indicate that the bear market has lower to go as well as half of the gains since the global financial crisis now being erased. We’ve lost in 5 weeks what took 11 years to gain.
The next level to watch for potential support should the 50% Fib level fail is the 61.8% Fib which currently rests at the same level as the 2015 lows and is another -15% lower from current price. That level also represents a -50% pullback from the all-time high(not to be confused with the 50% Fib level) and statistically, based on the -50% decline in 2000 and -57% in 2008, would be a good level to begin averaging in to stocks. The 2008 peak is indicated by the red, horizontal line and rests just below the 61.8% Fib level and should add additional price support from a technical perspective. Hard to believe that we are looking at 2008 price levels after the 11-year bull market that was the longest and greatest in history, but the bigger they are the harder they fall I suppose. While traditionally technical levels of support are good areas to do some dip-buying for short-term trades or averaging down in long-term investments, we may see those levels taken out as every support level on the way down so far has been blown through. Have to admit that I’ve never seen anything like this before with absolutely no significant bounces at what should be support levels, nor has any other trader.
The Relative Strength Indix(RSI) is below the 20 level which indicates that price momentum is in oversold territory, and is at its lowest level since the 2008 financial crisis. While the RSI is technicaly in oversold conditions, it can go lower and remain oversold going forward and is not an indication to start buying. It is merely an indication to pay attention and lookout for signs of a reversal ahead.
The Price Percent Oscillator(PPO) is in a steep decline indicating extreme downward price momentum and is also at its lowest level since 2009 as prices were making their lows before reversing. This also is not a signal to begin buying as the PPO can still head lower.
While the momentum indicators are showing extreme oversold conditions, I have little faith in them indicating a price reversal any time soon as the coronavirus pandemic in the U.S. is just getting started from a health perspective. I’m still anticipating a federal government order for all states to enter lockdowns which will increase the number of business closures as well as the number of people going unemployed thus not having disposable income to help stimulate economic activity. There are now 8 states under complete lockdown representing 1 out of 3 Americans, or 30% of the total U.S. population(101 million citizens in lockdown out of a total U.S. population of 327 million). My guess is that the national lockdown will come after the coronavirus economic relief bill is passed, which is expected to occur tomorrow. A complete lockdown of the country will only add to the number of businesses closing as well as the number of people filing for unemployment, which is estimated to hit over 2,000,000 in this week’s jobs number report.
The U.S. has a long fight ahead in not only battling the current coronavirus pandemic, but also fixing the damage already done to the economy, let alone what is still in store. Many businesses will be forced to shutter and may not survive a few weeks, or months. of no sales. Even the ones that do survive, there is no way to calculate at this point in time what the impact will be to their revenue and earnings going forward which is what is needed in order for investors to determine share value.
Today, Federal Reserve official James Bullard said that the unemployment rate my jump to 30% and GDP may fall -50% in the second quarter which are scary numbers coming from a Fed official. Those numbers are more bearish than even what major US banks such as JP Morgan and Goldman Sachs are predicting which in themselves are extremely bearish numbers. The selloff we are seeing now could be just the beginning of a much larger contraction going forward and indicate that it’s not a recession that we are facing, but a depression.
Price is now testing the 50% Fibonacci retracement level after falling below the lower line of the broadening wedge pattern which failed to act as support and is a bearish technical breakdown. The 50% Fib level represents the halfway point between the 2009 global financial crisis low of $6,460 and the recent all-time high of $29,543 made in February of this year. Should price fail to hold above the 50% Fib level, which looks likely given that we have yet to see the worst of the coronavirus pandemics economic impact, it would indicate that the bear market has lower to go as well as half of the gains since the global financial crisis now being erased. We’ve lost in 5 weeks what took 11 years to gain.
The next level to watch for potential support should the 50% Fib level fail is the 61.8% Fib which currently rests at the same level as the 2015 lows and is another -15% lower from current price. That level also represents a -50% pullback from the all-time high(not to be confused with the 50% Fib level) and statistically, based on the -50% decline in 2000 and -57% in 2008, would be a good level to begin averaging in to stocks. The 2008 peak is indicated by the red, horizontal line and rests just below the 61.8% Fib level and should add additional price support from a technical perspective. Hard to believe that we are looking at 2008 price levels after the 11-year bull market that was the longest and greatest in history, but the bigger they are the harder they fall I suppose. While traditionally technical levels of support are good areas to do some dip-buying for short-term trades or averaging down in long-term investments, we may see those levels taken out as every support level on the way down so far has been blown through. Have to admit that I’ve never seen anything like this before with absolutely no significant bounces at what should be support levels, nor has any other trader.
The Relative Strength Indix(RSI) is below the 20 level which indicates that price momentum is in oversold territory, and is at its lowest level since the 2008 financial crisis. While the RSI is technicaly in oversold conditions, it can go lower and remain oversold going forward and is not an indication to start buying. It is merely an indication to pay attention and lookout for signs of a reversal ahead.
The Price Percent Oscillator(PPO) is in a steep decline indicating extreme downward price momentum and is also at its lowest level since 2009 as prices were making their lows before reversing. This also is not a signal to begin buying as the PPO can still head lower.
While the momentum indicators are showing extreme oversold conditions, I have little faith in them indicating a price reversal any time soon as the coronavirus pandemic in the U.S. is just getting started from a health perspective. I’m still anticipating a federal government order for all states to enter lockdowns which will increase the number of business closures as well as the number of people going unemployed thus not having disposable income to help stimulate economic activity. There are now 8 states under complete lockdown representing 1 out of 3 Americans, or 30% of the total U.S. population(101 million citizens in lockdown out of a total U.S. population of 327 million). My guess is that the national lockdown will come after the coronavirus economic relief bill is passed, which is expected to occur tomorrow. A complete lockdown of the country will only add to the number of businesses closing as well as the number of people filing for unemployment, which is estimated to hit over 2,000,000 in this week’s jobs number report.
The U.S. has a long fight ahead in not only battling the current coronavirus pandemic, but also fixing the damage already done to the economy, let alone what is still in store. Many businesses will be forced to shutter and may not survive a few weeks, or months. of no sales. Even the ones that do survive, there is no way to calculate at this point in time what the impact will be to their revenue and earnings going forward which is what is needed in order for investors to determine share value.
Today, Federal Reserve official James Bullard said that the unemployment rate my jump to 30% and GDP may fall -50% in the second quarter which are scary numbers coming from a Fed official. Those numbers are more bearish than even what major US banks such as JP Morgan and Goldman Sachs are predicting which in themselves are extremely bearish numbers. The selloff we are seeing now could be just the beginning of a much larger contraction going forward and indicate that it’s not a recession that we are facing, but a depression.