Downside Potential For Dow And Banking Stocks

Since July 23, w e have warned of a correction in US equities , and while the view is playing out, yesterday's close on the Dow suggests potential for further losses. A fter breaking below multi-quarter trendline support on August 19 , the index failed to break back above this level on August 20 and had a weak close on the day. From a technical perspective, this could presage a move to support around the 14,630 level, although we note that momentum indicators such as the RSI and MACD are already oversold on the daily chart.

Another chart we hav e been tracking is the KBW Bank Index, which has also been correcting in recent days. Support comes in at 64.0, but if the Dow does head lower, we would likely see a break below this level . A sustained downside break could presage further losses to multi-month trendline support at the 60.0 level. But b eyond the short-term, we remain constructive on US equities , as well as b ank stocks, and we believe that from a risk/reward perspective, corrections will provide good entry points for going long .

Dow To Head Lower?
US - Dow Jones Equity Index

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