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Dow Breaks 2018 Low and Signals Lower Prices

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My weekend message showed the Dow Industrials testing important chart support along its late 2018 low. The weekly bars in Chart 1 show the Dow falling below that important support line this week. That raises the likelihood of even lower prices. The question is how low. The best way to determine the next potential downside target is to look at previous corrections/or consolidation patterns for potential support. And that would be the corrective period between 2015 and early 2016 marked by the two lower green horizontal lines. The upper line marks the top of that period near 18,350. The lower line marks the corrective bottom near 15,400. Those two potential support levels also make sense from a long-range perspective as shown in the next chart.

 The monthly bars in Chart 2 show those potential support levels in Chart 1 corresponding closely with 50% and 62% Fibonnaci retracements of the eleven-year bull market. Retracements of that size aren't unusual during bear markets. Chart 2 also shows the Dow falling below its major support line extending back to 2009 (red line). That also increases the technical odds for lower prices.

Chart 1

Chart 2


Editor's Note: This is an excerpt of an article that was originally published in John Murphy's Market Message on Wednesday, March 18th at 5:16pm ET. Click here to read the full article, which includes Chart 3 and an analysis of the S&P 500.

John Murphy
About the author: is the Chief Technical Analyst at StockCharts.com, a renowned author in the investment field and a former technical analyst for CNBC, and is considered the father of inter-market technical analysis. With over 40 years of market experience, he is the author of numerous popular works including “Technical Analysis of the Financial Markets” and “Trading with Intermarket Analysis”. Before joining StockCharts, John was the technical analyst for CNBC-TV for seven years on the popular show Tech Talk, and has authored three best-selling books on the subject: Technical Analysis of the Financial Markets, Trading with Intermarket Analysis and The Visual Investor. Learn More
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