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As Dow and Russell Enter Bear Markets, Here's a Look at the Charts

The Dow Jones Industrial Average and Russell 2000 are now in bear market territory. We haven't seen that chart setup in a while.

The Dow Jones Industrial Average officially entered a bear market on Wednesday, defined as a decline of 20% or more from recent highs.

It’s the fastest we’ve seen the market go from an all-time high to a bear market, taking just 19 days. The velocity of the move was stunning, as equities continued a near freefall while volatility soared to levels we haven’t seen since the financial crisis more than a decade ago.

Cratering oil prices and a coronavirus that’s spreading in the U.S. has citizens on guard. It’s also got many hitting the panic button - whether that’s stocking up on toilet paper or dumping stocks.

The panic has been real. Let’s see if we can make any sense of the charts at this point.

Trading the Dow Jones Industrial Average

Daily chart of DIA stock.

Daily chart of DIA stock.

The simplest way for most investors to access the Dow is the SPDR Dow Jones Industrial Average ETF  (DIA) . This security fell 5.8% on Wednesday and at its low on Thursday, was down an additional 9.85%. That’s some serious carnage, as the DIA is now down 28% from its highs.

The daily chart above shows just how difficult of a ride it’s been, particularly with a Volatility Index undefined over $50. After failing to hold the 200-day moving average and uptrend support (blue line), this area turned to resistance. Soon after, $255 gave way, leading to a plunge down to the $215 area.

Boeing  (BA)  has been responsible for a bulk of the fall, which is one of the top holdings in the ETF despite falling more than 64% from its highs just over a year ago. Apple  (AAPL) , UnitedHealth  (UNH) , Home Depot  (HD)  and Goldman Sachs  (GS)  round out the top five.

The weekly chart below shows the DIA ETF getting a bounce from Thursday’s low, which comes into play near the 2018 lows. Below $210 and the $200 mark could be on the table. It seems hard to believe, but below $200 and the $172 to $175 area would technically be possible. That would be a roughly 40% decline from the highs.

Weekly chart of DIA stock.

Weekly chart of DIA stock.

On a bounce, let’s see if the DIA can reclaim the 200-week moving average near $227. Above it and technically speaking, $250 is possible. I cannot emphasize enough how extreme these ranges are with the VIX now north of $60.


Weekly chart of the IWM.

Weekly chart of the IWM.

If you can believe it, small caps have been even worse. The iShares Russell 2000 ETF  (IWM)  is off more than 35% from its all-time high in 2018. The reaction from the 2020 high isn’t much better, down 34% from this year’s highs.

Again, the velocity of the move has been breathtaking. 

Below the $120 breakout point and the IWM could see more downside. Specifically, the $102 to $105 area stands out on the weekly chart above, with $90 in play below that. It’s hard to expect that type of decline, but anything is possible right now.

On the upside, let’s see if the IWM can reclaim the $120 mark. If it can, it puts the 2018 low in play near $125, while a move above that puts a gap fill up toward the $140 to $145 area in play, along with the 200-week moving average.