The Dow has been going up and down all year and August has been a bad month. Today it closed below 10,000 and if you look at the chart below, you will see we have gone nowhere in over 10 years now. The Dow Jones first closed above 10,000 on March 30, 1999 and here it is August 26, 2010 and we are right back at the same place! That is a long time to have gone nowhere.

Was there support at 10,000 and have we just broken below it? Will tomorrow and the weeks ahead mean the selling will accelerate because we have closed below 10,000? And what exactly is support and resistance in the stock market anyway? These are two terms that you might need a Stock Market For Dummies book to understand.

Support is a technical term that means there is a bottom price where there seems to be more demand than supply. In other words, once a stock (or the Dow) drops to a certain point, there seem to be enough people that rush in to buy because they feel that is a good price. This means that it is difficult for a stock to pass below support because people will usually buy it up. Once it does pass below support, that is a bad sign because it shows that there are few buyers willing to buy.

Resistance in the stock market is just the opposite of support. In the case of resistance, it is a price above which there are more sellers than buyers. If a stock goes up but has trouble passing a certain point, it is because that is the price that people are happy to sell at and take their gains. When a stock rises above resistance it is a very good thing because that demonstrates that demand for the stock is high and there is more demand than supply.

10,000 in the Dow is not a technical support or resistance level: it is just a number. However, it is a number that is special for psychological reasons because 10,000 sounds and looks so much better than anything in the 9,000's. People, whether they are aware of it or not, respond to these psychological stimuli and are more apt to attach importance to them.

The Dow closing below 10,000 on August 26th, 2010 may make people sit up a little more and wonder whether this signals more bad things to come. Or, they may think nothing of it and the market will go back up tomorrow. That is what is so fascinating about stocks: you never know how people are going to react to situations that come up on a daily basis and it is people willingness to part with their investment dollars that drives the stock market up and down.


The stock market is greatly influenced by the general economy and I have always stated that on this blog.

Following up on my last post about is this summer rally real?, we are now seeing that August hasn't been a good month for stocks. I am writing this on 8/20/2010 and as of mid morning the Dow Jones chart for August looks like this:

As you can see, August has seen the Dow go from a high of a little over 10,700 down to just under 10,200. That's around a drop of 5% and bad news is now starting to come out about the economy more regularly.

Just today there was this MSNBC article about more an increasing number of people are having to take hardship money out of their 401K's. That money comes with a 10% penalty and taxes have to be paid on it so anyone that does this REALLY needs the money and is desperate. This is a big indication of just how bad it is out there and how many people are in big trouble financially.

Also just yesterday, the market went down because of a bad jobs report. More jobs were lost in July then economists had predicted and companies look to be pulling back their hiring. I have talked about how I think we are in for bad times ahead as I think all the debt and foolish stimulus bill shenanigans are starting to catch up with us. I think the real unemployment numbers are MUCH HIGHER than the "official numbers" and I think things are going to get worse.

Now, the stock market CAN go up in troubled times but that is rare. The politicians can spin all day long about how things are about to get better or things are really not as bad as they seem but I don't believe them. I THINK THINGS ARE MUCH WORSE THAN THEY SEEM and we are going to be seeing that soon.

It the bad economy news stories continue to come out day after day and week after week, it is going to seriously stop average people from wanting to buy stocks. That will make the market go down and that is where I think it is headed. Reality sooner or later has to catch up with us and the stock market is going to act accordingly which means it is going to go down.

Let's hope I'm wrong but that is the way I see it.