Wednesday, May 08, 2013

above resistance - still no sign of a top

Here is a daily bar chart showing the Dow industrials for the past two years.

I had expected the 2007 top at 14.279 (green line) to be strong resistance, at least strong enough to start a reaction of 10% or more. But as you can see the  Dow moved above that level, reacted back to it with a low on April 18, and has since moved above the 15,000 level. This is a sign of a very strong market, much stronger than I had expected.

Another interesting development has been the very low levels of volatility and volume which have accompanied the latest move to historical highs in this average as well as in the S&P 500. This suggests that investors are generally very skeptical that prices can move much higher than current levels.

There is still a chance that the market is currently putting in point 23 of the domed house - points 21 thru 25 often take the form of a lopsided head-and-shoulders-top (blue oval). But frankly I doubt that this is the case and even if it is there will be time to recognize it and take appropriate action.

In the meantime I expect the 14,279 level to act as support going forward. A drop back near that level would put the Dow a little below its 50 day moving average (wavy green line) which is typically a buying opportunity when the 200 day moving average (red line) is moving upwards as it is now.

How much higher might this bull market go? The first leg up carried the Dow from 6,440 in March 2009 to 12,928 in May 2011, a total of 6,488 points. Adding this to the September 2011 low at 10,808 gives a repetition target of 17,296.

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