Could US Stocks and Dow Slide to 6,000?

There was a lot of optimism in the US stock market last week, as Monday's 400+ point rally on the Dow Jones Industrial Average (INDEXDJX: DJI) caused many traders to speculate that we were at the end of the 14-month bear market run in equities.

But a closer look at the charts and a simple technical analysis shows that last week's rally was right in line with the overall downtrend we're continuing to see. Seem confusing? Let's look at the chart.

Here we have a chart of the Dow Jones Industrial Average since October of last year. When we look for support and resistance levels, we see our lines form a nice down-trending pattern. The bull run of late March is well within the pattern (Learn more about support and resistance levels here).

Analysis continues below:

And also right in line with our analysis, the price bounced off our resistance level on Friday, and continues to slide this week. So the price of the Dow continues to trade within the pattern.

So where does the analysis tell us the Dow will go next? The news isn't good if you're hopeful for bullishness in stocks. The next level of support for the Dow appears to be at its recent low of 6,500. If that level fails, the next stop could be 6,000.

But, be cautious and watch the news closely. In this recent market environment, good technical analysis is easily spoiled by major news. Bank failures, stimulus passage, Geithner remarks, etc. have all caused the markets to move—in the short-term—outside technical analysis and patterns.

By John Jagerson of PFXGlobal.com and LearningMarkets.com.