Indian markets continue to fall. The Sensex now has fallen more than 60 per cent from the highs that it made in January 2008. If the fall continues then the first step which the regulator would take is banning 'short selling'. This has been speculated for the last 10 days that it can come any time. Now our markets are so badly wounded that if this last saver comes in then our markets are undoubtedly going to bounce back with vengeance. This step was implemented in most of the markets in US and Europe but has failed to bring life to the markets. These indices have kept on falling despite this ban. Even if our markets bounce then that would provide an opportunity for the institutions who want to sell due to pressure from their domestic front. Our markets as of now are driven by the cues coming in from the world markets. And most important of all, from the mother of all the markets – Dow Jones Industrials. Even if we have a ban on short selling and some interest rate cuts then also if the Dow keeps falling then we are surely to follow. So let’s try and find a support for the Dow Industrials so that indirectly we can judge the possible levels where the fall of the Sensex could be arrested. Dow has closed below 8500 levels after 2003. From a high of approx 14000 levels in October 2007 the Dow started to fall, made lower tops and lower bottoms to reach a crucial support level at 9700 levels. In the first week of October 2008, this support broke amidst the financial crisis and the Dow plunged to make a low of 7773.71 levels. After that, the complete month has seen the Dow trade range bound between 8000 and 9500 levels.
The weakness continues as the Dow failed to cross above the 9700 mark which now has become a resistance. The next support on medium term charts now exists at 7400 which is a very major support. If this is broken then the Dow would witness a change in its long term trend which has lasted for the last 25 years. This would be a bad sign for the Dow. Charts and technicals symbolize things atleast 6 months in advance. If this support is broken then the charts would suggest that the US economy is going to face a major problem. On the short term charts, the Dow is in the consolidation mode. Technically, this is a pennant pattern which it is forming. The confirmation is on a breakout below the support or the lower band of the consolidation phase at 8000 levels. If this level is broken then the pattern target for the Dow would be approx 6000 levels. And if the level of 8000 is broken then negative things can be expected to happen in the super power economy. If the medium term trend changes then the next best support for the Dow would be at 4000 levels. Let’s make up our mind today itself that Dow is going to fall down to anywhere between 6000 to 4000 levels. So our markets and Sensex could feel some more heat due to the global events.