This will be quite short since I need to get back on the road within the hour. It’s 3:45 pm EST and the December Dow just took out yesterday’s intraday low of 9,550 and is trading at 9,535 and seems to be gaining downside momentum into the close. None of this is a good sign, especially since the cash Dow is trading almost 700 points below its intraday high! Unless we see a miracle, and we won’t, the Dow, S & P, the Transports, and the NASDAQ will all post new closing lows for this leg down, and that is really bearish. The December Dow is now going to close well below what was supposed to be strong support at 9,915 and will more than likely test the next level of strong support at 9,063 sooner rather than later. I have posted the relevant Fibonacci numbers below:

                                         SUPPORT                         RESISTANCE
   
DOW                                   9,063                                      9,915
                                            8,146                                    10,521
                                            7,470                                    10,725

The Transportation Index is currently down 203.01 points at 4 pm EST and that puts it below 4,000 and 3,897 and approaching strong support at the 3,760 level and that

may also be tested within the next week or so. With respect to the Transportation Index, they are play playing catch-up to the Dow and even seem to be leading them lower. I have posted the relevant Fibonacci levels below for the Transports:

                                         SUPPORT                         RESISTANCE
   
TRANSPORTS                3,760                                   4,172
                                            3,351                                   4,626
                                            2,893
                                            2,460
        
The 3,760 support level is important because it represents a 50% retracement of the entire bull market in Transports.

Now I would like you to focus on two indexes, consumption and banking, which were the backbone of the bull Market for more than four years. First consumption:

and then Banking:

Once the Consumption Index broke below 640.00, it fell off of a cliff and, considering it accounts for 75% of the US economy, that’s not good. The banking Index is another story. Considering that it has been the beneficiary of bailout after bailout, to such an extent that the government even forced the short covering of banking shares, and yet it just can’t rally. I still see a lot of downside in this sector and suspect that certain institutions like Citibank and Bank of America will not survive another year. The fact that Citibank is allowed to bid for other assets with Fed money defies description.

Today was a rare day in that the Dow, US bonds, and the US dollar were all beaten up pretty bad. That is unusual and it always pays to be on the lookout for the unusual!! Remember I told you more than two years ago that when you see all three headed in the same direction, i.e. down, you’ll know that things are about to get very bad. Here’s a prophecy: if all three start to head down after New York opens tomorrow morning, you’d better lock up the kids and the good china. We haven’t looked at the UD Dollar Index in a couple of days, so I have posted it below:

It did break out above the resistance from the old low at 80.50, but we just might see that it was a “false break” and that typically signals the end of a reaction. It’s too early to tell, but I should know in a day or two.

Finally, I would like to close by taking a look at gold. The December gold futures contract rallied 19.40 to close out the day at 885.60 and is up another 3.10 on the GLOBEX. I am not going to bore you with graphs and charts, but I am going to tell you this much: gold is going to break out to the upside like you have no idea, and then the opportunity will be gone. Gold is very, very cheap right now, so buy more! All you can, but without margin!! No stocks, just coins or bars. Silver too. It’s even cheaper than gold, and that is hard to believe. 

ebo@dtanalysis.com
Dow Theory Analysis SAC
October 07, 2008