Drop the confetti, cue the band, and light the fireworks because
on Friday, the Dow Jones Industrial average reached 15,000 for the
first time ever. For traders, 15,000 is a psychological level and
psychological levels do hold significance.
In theory, when these levels are reached as part of a bull
market, traders should get that warm and fuzzy feeling like we all
did when Phil Mickelson finally won the Masters but what does it
really mean for the market when all emotion is stripped out?
We went back and looked at the last three major levels and where
the Dow was seven trading days after it crossed the level.
14,000- Up 2.35 percent 13,000- Down 1.25 percent 12,000- Up 1.99
Also worth noting, these levels didn't serve as the strong
support that traders believe they are. The 12,000 and 13,000 levels
were tested and failed after initially breaking out.
Now that we've looked at the past, what do the charts say about
the future? Once a stock or index reaches an all-time high, finding
strong levels of resistance are nearly impossible but if we draw
the upward trend line of the ascending channel of the Dow (see the
chart below), we find approximately 300 points of upside.
Of course, that doesn't mean that it won't run into resistance
along the way and it doesn't mean that the Dow will add another 300
points any time soon.
How about the downside? What are the levels of support? The 50
day moving average currently sits at 14,511-3 percent below current
levels. Above that, there is a weaker support level at 14,537 and
Technicians confirm moves by looking at volume. Despite some
impressive moves, volume has formed a downtrend since April 25.
This is a troubling sign that might indicating the strength of the
rally is drying up. RSI currently sits at 64-approaching overbought
conditions but trending up. Volume and RSI contract each other
making it difficult to gauge where the market goes next.
What to do now
Although the market has fallen back below the 15,000 level
intraday, reaching that level was significant. However, it's safe
to say that looking at it from a purely technical perspective, it
holds very little weight. For that reason, traders should look at
the chart and play what the chart is saying. In this case, it's
hard to fight the upward trend. No need to change your thesis until
technical levels break.
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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