The Dow Jones saw a 400 point drop on Friday, falling 7 percent for the week and making last week the worst performance by this key index since 2008. The S&P 500 is now down 18 percent from its high earlier this year which technically puts it close the the 20 percent market making it officially a bear market. The Federal Reserve hiked rates on Wednesday and this fact combined with the fear of the consequences of a US government shutdown only added to the selling pressure that dominated the Dow all week. So on Friday, the Dow fell 414.23 points to finish at 22,445.37 in a volatile trading week. Note that the Dow rallied 300 points earlier in the day then sold off….this kind of volatility is not a market that many investors want as the systems trading or machines (read our previous articles) have dominated this shockingly fast market moves. How do we trade this market ?
With the Dow losing 6.8 percent on the week or 1,655 points, we must think up a strategy. Of course with Nasdaq down 8.3 percent for the week, and 22 percent below its August high, we should have some thoughts about this market. Finally the S&P 500 down 17.8 percent from the highs says something. And volume has meaning, a lot of meaning. The 12 billion shares that changed hands on US exchanges on Friday was the heavies volume in 2 years.
Have a look at the 21,850 level in the Dow. If you are short this index, it might make sense to focus on the 21,850, then the 21,250 level to buy back shorts.
We do not give trade ideas, just focus on levels and suggest possible key levels to exit.