Dow’s break under 12,000 can’t be dismissed as a little volatility. It may be the straw that breaks the bull’s back.
Aug. 3, 2011, 7:59 a.m. EDT
Market’s drop was straw that broke bull’s back
Commentary: A perfect storm of technical indicators at 12,000
James Brumley
ROCKVILLE, Md. (MarketWatch) — On Monday the market was at an inflection point — a proverbial fork in the road. By Tuesday’s close it was clear the bearish path was taken. Unlike most of the market’s minor inflection points, though, this one will likely have major and longer-term consequences for the worse.
Nowhere is this more pronounced than with a chart of the Dow Jones Industrial Average. While as of Monday this blue-chip index hadn’t yet fallen to levels all but impossible to recover from, Tuesday’s steep selloff under the important 12,000 level may have pushed it over the cliff.
There were several technical factors in play here, and interestingly, they all line up at that 12,000 mark. In no particular order, notice on the chart below:
• The 200-day moving average line (green) — the grandfather of all moving averages — at just a hair under 12,000 may have played a role in kick-starting Monday’s intraday rebound, but it completely broke down on Tuesday.
• An intermediate-term support line (orange) that traces all the major lows going back to the March low of 11,155 was also right at 12,000, and also failed to hold the Dow up.
• It may only be psychological, but it still matters as long as the majority of investors believe it does: The 12,000 level is a big round number, which traders tend to treat as make-or-break milestones. Now that it’s broken, so is the hope that keeps stocks afloat.
Full story: http://www.marketwatch.com/story/markets-drop-was-straw-that-broke-bulls-back-2011-08-03
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