Last month, I put a target on the Dow of 11,246 (see (”Chart of the Dow — 11,246 or Bust”). This was based on Fibonacci resistance. Basically, my argument last month was that since the Dow was in a bullish trend and had clearly close above its 50% Fibonacci retracement — common support and resistance lines used by technical analysts — its next stop was likely the 61.8% retracement at 11,246. We are closing in on that level now.
A couple of points …
1) I’m using a weekly chart. The Fibonacci numbers would change if you used daily or monthly charts.
2) These lines should be written in smudged crayon. It’s more of a general target than an exact target.
Now, as I’ve written about on this blog and a recent UncommonWisdomDaily.com issue (see “America Shifts into Higher Gear“), the fundamental news is generally bullish. Therefore, the bulls won’t want to stop at the 61.8% retracement. However, I expect to see sellers come in around that level. The Dow could take some time to work through that level.
The bears will make the case that A) true V-shaped recoveries are rare B) the market has gotten far ahead of its fair value and C) “Ohmigod! Ohmigod! We’re gonna crash!”
A and B are true, and C may be true. Just remember that, as a wise man once said, the market can remain irrational longer than you can remain solvent.
Anyway, I’m expecting a frustrating time ahead for the leading stock index, with lots of zig and zag around that 61.8% retracement. I’ll let my subscribers know when the Dow either breaks to the upside or noses over into a swoon.
It’s really best to wait for this to resolve, but very short-term traders can play the next couple hundred points on the Dow to the upside if they want to. Because while the Fibonacci line acts as overhead resistance, it also can act like a magnet. Just keep that Fibonacci resistance in mind and take profits when you got ‘em.
Personally, I would love a quick sell-0ff to support at 10,365. But as another wise man once said, you can’t always get what you want.
Be careful out there.
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