Baby Steps for the Dow

• Posted by Greg Harmon
• on August 18th, 2015

In the movie What About Bob, Dr. Leo Marvin (Richard Dreyfuss) has his patient Bob Wiley (Bill Murray) with multiple phobias follow him on vacation to Lake Winnipesaukee when he cannot remain stable without him. A big part of the movie has Dr. Marvin telling Bob to take baby steps to overcome his phobias, like sailing, in the picture above.

The Dow Jones Industrial Average reminds me of that film now as it is trying to turn around higher, but taking baby steps to do it. Take a look at the chart below. There has been a clear trend of lower lows since the beginning of June forming a falling trend support line. Coupled with the lower highs there is no doubting the trend lower.

There are some promising signs though that a turn around may come on this bounce, or at least reasons not to short it at this juncture. Baby steps for now. Start with the Hammer candle that reaches down to 17125.81. It is a near Dragonfly doji, a very powerful reversal candle. The following day saw it confirmed to the upside with, but with an indecision candle, a Spinning Top doji. Friday last week confirmed that to the upside and Monday had follow through higher. Baby steps.

The RSI, an indicator of momentum, is also moving up and close to crossing the mid line. That would be a bullish sign. The other momentum indicator, MACD, has made a 9 month low and is reversing. It is about to cross up, a bullish trigger.

If it is going to continue and reverse this downward channel the next baby step to look for would be a higher high, preferably over the 17783.59 high from July 31. A failure and reversal lower before then and it may be time for Dr. Marvin’s Death Therapy.

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