Dow is poised to do a "Test of the Low"

After last Friday sharp fall of 250 points, Dow appears poised to do a "Test of the Low". I think a revisit of the August low just below 12500 is possible but fairly slim. It is more likely that the upcoming test may see the index testing the psychological support of 13000 and even the strong horizontal support of 12800.

How do we know whether the market is likely to "pass" this test & recover? You can look out for 2 indicators, i.e. the MACD & the Slow Stochastic for signs of possible recovery. In the June-July 2006 correction, we can see these 2 indicators had shown a bullish divergence before the index did a recovery. Maybe, we can see the same signs again. Otherwise, the index is deemed to have recovered from this test when it surpasses the 13500 level recorded on September 4.


Chart: DJIA's daily chart as at September 7 (courtesy of Yahoo Finance)