If you pay attention to technical analysis, you saw the pullback coming.
Not only were indices overbought at their upper Bollinger Band (2,20), but RSI, MACD, and Williams’ %R were all aligned in overbought territory. We saw the exact same set up twice before just this year. Each one led to a pullback.
While we don’t expect for this pullback to last long, we could see a further drop.
And we’re not the only ones that believe so. Allianz Chief Economic Advisor Mohamed El-Erian just told CNBC, “We could have another 10% fall, easily.”
“El-Erian said the market, though, remains decoupled from not only the U.S. economy, but the VIX, treasury and high-yield markets at current levels. With the tech-heavy Nasdaq up double digits and the benchmark index up nearly 7%, the market was ripe for a pullback after five straight months of gains and the strongest August in decades,” added CNBC.
If you take a look at a one-year chart of the Dow Industrials, you can see the index has just begun to pivot lower from its upper Bollinger Band. At the same time, you can see RSI, MACD, and Williams’ %R have also just begun to pivot lower.
From here, the index could easily test support at 27,526. Should it break below that, it could test its 50-day moving average, which would put it around 27,058. From there, the next test would be of double bottom support at 25,992.
We don’t think the pullback will become that severe, though. Stay tuned for more.
The post This is Why the Dow Jones Could Fall Another 10% — Easily appeared first on Morningology.
