Dow Plunge To Continue After Churning A Bit 

With the Dow volatile in the 17 500 to 18 000 levels, I expect this trading range to continue before the Dow Jones Industrial Average plunges further into the mid 16 000s. After that then we shall see a rally up to 18 500 or 19 000 in two to three months time.

Justification

The broader stock market has been falling mostly due to falling oil prices and that trend does not look like it will change course anytime soon. Since oil prices will remain subdued for quite some time, I see no reason why the stock market should rally in the near term. It seems like whatever good economic news investors get, it only causes a one day rally followed by quick profit taking.

This scenerio played itself in October last year before the Dow and the S&P plunged into correction territory. It is highly likely that the same situation may occur in the next coming week or two or even three.

Why The Comeback Rally

Global economic conditions are not in recession territory and if we do not count the oil price effect, not much is at risk of falling apart at the moment. Oil, however is a commodity the world can not live without, unlike gold, its come back is almost guaranteed. Other commodities like gold and silver may remain low for longer due to their lack of real use as far as the general population is concerned.

It is highly likely that oil supply will be cut off somewhere, by some country somewhere in the world, and demand will pick latter as those who have found themselves with higher savings due to lower oil prices will use the extra cash to spend on oil related products.

As for now, the Dow short is still in tact until we get well below 17 000, then a rallying going forward is almost assured.