Dow Witnesses Healthy Bounce

On 17 Oct 2014 Dow made a remarkable comeback to post healthy gains of 263 points (+1.63%). This was after posting steep losses for six straight days from 17000 to sub-15900. Yesterday's price action suggests that Dow is on course to reach its 200 day moving average line of 16588, which will be its first resistance level. In my last two posts I had held that view even when Dow was experiencing massive intra-day sell offs. It appears that my stance has been vindicated by yesterday's market action.

That said, we now need to be more vigilant of movement of Dow. If you recall in my very first blog post, I had given target of 18000 for Dow from level of 16400. That still remains a possibility in case the following conditions are met :-

1. Dow during this present rally should not violate its hammer price of 15855.
2. Even if Dow gets resistance from its 200 day moving average line at 16588, it should not close below 15855.
3. After crossing its resistance at 16588, Dow should close above 17100 for it to reach its target of 18000.

In case the above mentioned conditions are not fulfilled then we need to be fearful. Let me explain. After reaching or crossing its resistance of 16588, Dow will be susceptible to reverse direction. And if it decisively reverses direction from there, then we can forget about target of 18000. On the contrary we will witness a huge bout of selling which will take Dow way below 15900. In fact it will officially announce the beginning of a prolonged Bear Market and then we can discard all notions of it being only a correction.

The susceptible zone from where Dow can reverse direction is 16600 to 16900. If that happens I would advice all to sell their entire portfolio and sit on cash - because journey downhill will be very steep and unforgiving to investor wealth. In such a scenario we will be looking at sub-10000 in Dow over two-year period.

Keep a sharp lookout for conditions mentioned above. For any clarification, do feel free to ask me through the 'Comments' section of this post. Best of Luck!