Technically Speaking

It's Groundhog Day So the Dow Must Be Going Down Again

Source: DTN ProphetX

If it was any other market, my analysis of the attached chart would conclude that the underlying market was set for a sharp sell-off. But in this particular case we are talking about the Dow Jones Industrial Average (DJIA), a market that has proven its bullish resiliency over time. Followers of this blog might recall the last time I wrote about the Dow, oddly enough almost exactly a year ago ("The Dow: Singing a Familiar Springsteen Tune"). By the time February 2014 came to a close the DJIA had regained its strength.

This time around the tune is the same but the picture is different. The end of January saw the DJIA close at 17,828.24, just off its monthly high of 17,894.83. During December the Dow moved to a new high of 18,013.45, take out the December low of 17,278.36, before closing slightly lower (for the month) at 17,823.07. If you reread the December description carefully, it has all the characteristics of a classic bearish key reversal. The fact that trade during January remained volatile, with the DJIA closing near its monthly low of 17,136.30 with a settlement of 17,164.95 seems to confirm the idea the Dow has established a top.

I know, this is becoming as repetitive as Punxsutawney Phil seeing his shadow, but February 2015 is again showing signs that the DJIA should see a hard fall. Using Dow Theory, the initial target price would be the 33% retracement level of 14,229.49. The interesting thing about that is it's between pockets of previous trade, highs near 13,300 from March 2012 through December 2012 and lows near 14,700 from May 2013 through October 2013. Generally speaking, retracement levels tend to line up with these previous pockets of trade.

The 50% retracement level of 12,886.70 is a closer fit, but still not ideal. And it is hard to imagine an analyst wanting to go on record saying the DJIA is set for a 5,800 point sell-off. Nevertheless, the chart speaks for itself and seems to be saying 2015 should see increased pressure in equities. We'll see. It's possible I'll be saying this same thing again next Groundhog Day.

To track my thoughts on the markets throughout the day, follow me on Twitter:www.twitter.com\Darin Newsom

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