Dow Challenges Intermediate Neutral Trend

The Dow made its lowest close since 2002 today, closing just a tad below the November low (which is the low of this crisis so far), on mixed economic numbers. On the one hand, leading indicators continued to point higher for a second straight month, which of course is a good thing but on the other hand, the Philly Fed survey turned in far worse than expected, indicating continued contraction in the manufacturing sector. However, the forward looking general business condition index produced by the Philly Fed indicating conditions 6 months into the future has improved significantly, agreeing with the leading indicators. All these numbers lined up seem to suggest that we are now in the worst possible condition and things would start to improve a few months out but no investors seem to think alike.

On the technical front, even though the Dow has closed below the November close, it has not yet beaten the November low of 7450. This means that it does not constitute a significant breakout and that the Dow remains in short term down trend and intermediate term neutral trend. The November low is expected to be a strong support level and with the volatility surrounding tomorrow's options expiration (see economic calendar), I don't think we will see a resolution.