Is This the Beginning of the End?

When markets are so volatile and can swing hundred points each direction in a given week, then sometimes all the fundamental and technical analysis should be thrown out the window. That being said, it doesn’t hurt to see where we could be heading.

First check out the Dow (INDU) over the last 7 years:

With any great trend, I always like to use the Fibonacci replacement. It is a great way to see how far the stock has fallen off from the peak of the trend.

As you can see the Dow tested the retracement at both the 63% and 50% levels; however, it looks like the Dow is going to shoot right past the 38% level. If this break happens cleanly, then the Dow could easily drop to $8,000.

Now observe two different looks at the S&P 500:

First with the retracement and then just looking a solid support, which essentially cuts the stock in half.

Just like the Dow, the S&P tested the 68% and 50% levels before breaking right through the 38%. A clean break indicates we could see a move all the way to $850. Prices not seen since 2002.

By trying to determine a solid support line for the 7 year span, we are also led to the same conclusion of the Dow hitting $850.

Take Information in Stride

It is important to remember that in these highly volatile markets both fundamental and technical analysis can prove to be absolutely useless, but to most media that doesn’t make any interesting stories. So, although you will hear fearful stories over the next couple of weeks and/or months about the markets plunging to levels not seen in years, it is important to remember that we could just as easily ride higher before reaching the “center of the earth.”