Tuesday, October 07, 2008

Dow Jones Industrial Average Falls To Zero In Six Weeks?

The Dow Jones Industrial Average has declined about 1,403 points over the last five trading days or nearly 13%. If the index continues to decline at this same pace, it will be at zero in about six weeks. I don' think so. The index fell 508 points today. At this rate of decline, the index will be at zero in 19 days! The market seems disconnected from fundamentals and fear seems to have taken over.

(click charts for larger image)

Dow Jones Industrial Average percentage change last 5 days as of October 7, 2008
Dow Jones price chart as of October 7, 2008
On the members section of The Kirk Report website, Charles Kirk noted all of the technical indicators from the SentimenTrader's roundup are flashing bullish. None are giving off bearish readings.

(click table for larger image)

technical indicators all bullish as of October 7, 2008
Additionally, The Kirk Report highlights the oversold sectors from Bespoke. Charles notes that five sectors are trading with no stocks above their 50 day moving average as of October 7, 2008: Industrials, Energy, Health Care, Materials and Telecom. On October 3, 2008, Bespoke indicated there were three sectors that had no stocks trading above their 50 day moving average.

The economy and market are certainly challenged at the moment. However, the recent sell off seems to be extremely overdone. At a minimum, the market could be setting itself up for an oversold bounce.


Gopal said...

Let's hope for all our sakes this doesn't happen. I agree with you that fear has taken control of this terrible situation making things even worse than they obviously are. I am trying my best to stay calm and stay the course with my small investment portfolio. Regardless of the fact that we are in some of the worst economic times since the Great Depression I am sure things will rebound. Obviously it will take several years to recover but what goes down eventually goes back up and back down again in cycles. Peaks and valleys are inherent in the stock market. People sometimes lose sight of that, and understandably so, but soon enough we should be on the ascent, albeit a slow one. Long and hard is the path out of hell. All the best, G.


David Templeton, CFA said...


You certainly have the right perspective on the market, that is, a longer term view. As you noted, peaks and valleys are a park of investing and this is one of those valleys. I do think we are nearer to the valley floor. The question is whether the the floor is more of a "V" or a "U". Nonetheless, five years from now, investors will probably look back at this point in time and wish they had invested a little cash and/or not sold their holdings.


Iron Yuppie said...

It's an interesting graph, but by that logic, my son, who is now 14 months old will be 5000 feet tall and about 3.5 billion pounds by the time he's 30. This has been a very crazy market, but perspective please.