04-08-2025
A bearish 'double top' pattern just formed in the Dow. What that means
A "double top" pattern formed in the Dow Jones Industrial Average last week, an indicator of tough times ahead as signs of fatigue surface in the overall market. A double top occurs when an asset reaches a high price twice and fails to break through it, often a bearish indicator suggesting buyer exhaustion and a loss of momentum. Last week, the 30-stock index formed the pattern when it failed to punch past resistance around the 45,000 level. That failure could mean further downside for the Dow, starting with support at 42,500, which is just below the 200-day simple moving average, and a roughly 2.5% drop from Friday's close, according to a Sunday note from Bank of America Securities. More Fibonacci retracement levels, which chart out potential support thresholds, are also at 41,800 and 40,800. "The Dow failed to breakout about 45,073.63 to show signs of breadth and rotation. Instead, it formed a double top pattern with shorter-term downside target of about 42,500 or just below the 200d SMA," Paul Ciana, technical strategist at Bank of America Securities, wrote Sunday. "Burden on bulls to show signs of support." .DJI YTD mountain Dow Jones Industrial Average, year to date The double top in the Dow is not the only sign of weakening market internals, with many chart analysts over the weekend flagging other potential warning signs for the near-term outlook. JC O'Hara, chief market technician at Roth, pointed out that "plenty of equity indices have run straight into chart resistance," with the average stock last week unable to create new highs. BTIG's Jonathan Krinsky noted that the S & P 500 's streak of closes above its 20-day moving average ended Friday. He said he expects there's further downside risk for the broad market index, with support at 6,100, which is roughly 2.2% below Friday's close. "The Bears started to awaken from their summer slumber," Roth's O'Hara wrote Sunday, adding, "The market is priced to perfection and now prone to near-term downside risk." A weakening macroeconomic outlook also adds to the market's woes. Stocks sold off Friday, after the latest jobs data revealed severe cracks in the labor market that raised fears the U.S. is headed for a recession. On Monday, however, stocks recouped some of their losses from Friday's sell-off. The Dow was last higher by more than 500 points, or 1.2%. The S & P 500 and Nasdaq Composite rallied 1.3% and 1.8%, respectively.
