I hope nobody fell into too much of a panic last week. In my Dow Charting post last week I said I didn’t think the Dow Industrial average would fall more than 500 points in the near term. It fell 565. I had it right until the last 20 minutes of the day on Friday when the last breathe exhaled and we broke the trend line I had drawn. Not to fear, I was only one trend line away from drawing it correctly.
This week’s chart has one circle (A) that really seems to have mattered. It’s only one circle, but contains three parts. First, the line (B) I would have drawn last week if had I believed the fall would happen all in one week. I thought I’d have time this week to foretell that floor. Instead I’ve drawn it as history. The second line (C) is the straight floor coming above a weekly high in late April and just below the lows of three weeks in June. The third element of circle A is the 20 week moving average. We broke through the 10 week moving average that held for the first couple of months of the year, but showed weakness through June.
Futures are up this morning, ready to give us a nice bounce. If the lines that meet in circle A can provide support this week, we could very well avoid a total meltdown. I’m not calling for a roaring bull to come running back in the picture. Actually I hope it doesn’t. I’d prefer a slow moving up trend to stay with us for longer. With volatility up, those of us who sell options on a regular basis could increase our returns as long as we don’t have many more weeks like last week. If you can handle the risk, I suggest continuing to sell OTM options using limit orders rather than ITM with a market order since we should stay choppy for a while still. Using a limit order can be all that’s needed to let you “get in” on a dip.
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