The start of 2008 has seen the Dow Jones decline by -4% and this is potentially bad news for the market.
Historically we know that the index starts a three month rally from November through to January end but this time round we posted a high in October at 14198 and declined -10.31% to a low of 12733. This coincides with the November 2007 low and could post a double bottom.
However the pattern suggests that we could head lower in an ABCD type correction if we break below the 12724 November low. If this is the case, then look for a continuation to the downside for a reach of 12422 which is the Fibonacci 0.786% retracement level and also the 100% Price Projection.
Also a case for the bearish scenario for the intermediate term is that the Relative Strength Index posted as Sell signal in late December as well as falling below its 20 day Moving Average.
In order to get back into a Bullish mode we would need to see the index revert this back by first climbing above 13140 and also to see the RSI get back above its reference line. Providing this takes place we could then target upside levels at 13246 and above at 13385. If the upside momentum is strong then a break above 13563 can rally the index upwards towards 13788.
Remember that January often is a seasonally strong month and so far the results have not been good so lets see if we can muster the index to a late start rally and compensate us with a better performance in the later part of the month.
2008 will see that traders experience increased volatility and large range moves in both directions whilst fear and caution take precedence over the markets this year.