At The Close  |  SEP 2007

At The Close by William Ferree

At The Close by William Ferree Where Do Indexes Reverse? Those big round numbers have an influence on prices…sometimes great, and sometimes (surprisingly) not so great. Big round numbers, those with a single digit followed by zeroes, obviously have an influence on prices, and most major reversals have occurred as a popular index was hitting one. The Dow Jones Industrial Average (DJIA) has long represented the market to most observers, and Figure 1 shows that near the turn of the last century, it reversed six times from the 100 level. After finally breaking above the resistance around 100, it passed through 200 and 300 to peak somewhere near 400. During the crash of 1929, there were brief bear rallies to near 300 and 200, and it bottomed near 40. After the crash, it rallied near 80, fell near 50, rebounded to 100, corrected to 90, rose near the next big round number of 200, and fell all the way back to 100. It then broke away and rose rapidly, correcting with small bear markets from 200, near 300, and 500. After nearing 1000, it repeated the experience at 100 by reversing into severe bear markets five times from that level.

by William Ferree