Dow Plummets, JPY Crosses Follow The Leader

The Dow has continued its downward momentum all this week with more concern over undisclosed losses still to come from financial firms in the subprime market. The DJIA is facing pressure further to the downside according to its weekly chart.



Its 10 week SMA (13,662) & 30 week SMA (13,491) are nearing convergence. Money manager great, Victor Sperandeo ('Trader Vic'), points out in his book, Methods of a Wall Street Master , the significance of the weekly 10/30 moving average crossover. I've looked at charts for many securities, stocks and forex markets, and this crossover has served as a critical turning point. This book is an old publication, but he gives you some great technical advice when analyzing charts.


Its previous low of 12517.94 on Thursday August 16, 2007 was sustained only by federal government intervention where $120 billion of liquidity was injected into the banking system. They cut the discount rate from 6.25% to 5.75%. Most analysts agree that this was just a temporary fix. As the chart shows, the Dow's rebound from this level has been very minimal. Currently hovering just above the 13000 level at 13106.63, should this level give way, the Dow could see a further collapse with the 12,500 providing medium term support.




The Yen pair that I'm watching is the NZDJPY. It closed at 84.56. All of the Yen pairs are under siege with the Dow on life support. The first chart I have posted here is of the NZDJPY daily time frame. Using Andrew's Pitchfork (my newest favorite technical tool), it is apparent that support will come in around 80 should a substantial drop occur in the Dow next week.



The next chart zooms out a bit further to the weekly time frame. Always step back and observe the big picture. The weekly time frame usually gives you a good view, but you want to see all of the price movement of a security when making an assessment of the price direction- look at the monthly and quarterly charts too! In this weekly chart you can see what is called a trend channel represented by a blue upper trendline, a black middle trendline, and a red lower trendline. This is a regression trend channel. Basically, it shows you how well the security is trending. On longer time frames, you'll find how well price movement respects these boundaries. Again, on this chart support appears to come in around 80. Always do your own analysis and trust in your own judgement. Happy Trading!