Something You Never Want to See as an Investor

Corey Rosenbloom comments on the market mayhem.

Something You Never Want to See as an Investor

Courtesy of Corey Rosenbloom at Afraid to Trade.com

You’ve read the headlines – turn away if you like – but the Dow Jones closed today at a level not seen since 1997, as price broke and closed beneath the 2002 index value low of 7,197. Let’s see the carnage on the charts.

Dow Jones Monthly Chart:

Today’s closing low of 7,114 – and the intraday low of 7,105 – breached the 2002 bear market low and sent the index down to a 12-year low. The same occurred on the S&P 500, though technically the S&P 500 missed making a fresh closing low by a mere 2 points. It also closed beneath the 2002 bear market low, but technically the 741 intraday level set in November 2008 still holds… by a fraction (the S&P closed today at 743, with an intraday low of 742).

Let’s not get caught up in technicalities, though. It means that investors have been devastated in the bear market plunge that began in October 2007. Investors who bought stocks or mutual funds beginning in 1998 are officially underwater in their long-term investments (though dividends have helped).

Should February 2009 end on a negative note (close), then that would mark the 6th month in a row the Dow Jones Index declined on a closing basis. We’re certainly due some sort of rally, but those buying into that belief have been hurt so far.

The old saying goes “In a bear market, you’re either short or out.”

Investor anxiety and panic may be setting in, and people have caught on now that odds favor lower prices. However, bear markets end when everyone is convinced that prices will keep going down forever, and they end when everyone is bearish and has sold out of most/all positions (leaving no one left to sell).

There’s not much support left if we can’t hold these levels. There is no more recent chart support (the last being the November lows which still are in tact for the NASDAQ and Russell 2000), but should all indexes break these levels, then we’ll have to go to Fibonacci Price Extensions off higher-level swings for forms of possible support.