The velocity with which the market and leading stocks have fallen this past week has been quite astounding. It is reminiscent of the action in early February, which featured the Dow Jones Industrials Index’s first-ever 1,000-point downside close. These days, however, a drop like that is only about 5%, nothing in comparison to the May 6, 2010 Flash Crash that saw the Dow decline about 10% on an intraday basis.
After slashing through its 50-dma on Wednesday, the Dow looked like it might hold its ground and rally on Thursday after undercutting its prior early-September low. That early rebound to the upside was short-lived and the index reversed, closing -2.13% to the downside as it broke below its 200-dma on heavy volume. However, the index did manage to undercut and rally back above its prior July and August lows on a closing basis.
This set up A volatile day on Friday where the index gapped above its 200-dma at the open, turned negative as it dropped back below the 200-dma, but then rallied again to close back above the 200-dma. When the dust had settled, the Dow closed just below its opening levels but ended up holding most of the initial gap-up opening move as it formed a bullish hammer on the daily candlestick chart, below.
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