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FIBONACCI


Is The DJIA Starting A New Leg Up?

12/17/08 08:47:10 AM
by James Kupfer

The DJ 30 appears to have started a new leg up. How much further might be left?

Security:   DJ 30
Position:   Accumulate

If we were to assume that the Dow Jones 30 and other major equity indexes have put in a minor bottom, how much upside is left? Fibonacci levels can be helpful to determine potential future price action in the DJIA. To start, find the Fibonacci price levels between the most recent significant low in October and other significant market peaks. I have used the August 2008 (orange), May 2008 (blue), and October 2007 (brown) highs. Due to the convergence of so many price resistance levels, it can be difficult to see them all, so I have circled them on Figure 1.

The first level, in blue, is between 9042 and 9136, calculated using a 38% and 23% retracement from the August 2008 and October 2007 highs, respectively. Given that the market has previously come very close to reaching these prices and that the levels are not really all that close together, it seems logical to conclude that 9100 will be passed in the not-too-distant future.

FIGURE 1: DJIA, WEEKLY. Resistance levels for the DJIA are circled.
Graphic provided by: Wealth-lab.
 
The second level, circled in yellow, is formed between 9658 and 9621. It is calculated by finding the 50% and 38.2% retracement levels from August and May highs. In addition, the Dow Jones 30 peaked in October at 9653. This now becomes an additional level of resistance the market must overcome.

The final near-term zone of resistance is circled in red between 10000 and 10300. It is formed by a convergence of Fibonacci resistance levels from each of the aforementioned periods. In addition, the bottom of the descending channel formed before the October break is right now at about 10000.

Remember, until proven otherwise, traders must operate on the assumption that the bear market is still in effect and that any bounce occurs within the context of the bear. It seems likely that the Dow Jones Industrial Average (DJIA) will surpass the 9100 level, only to stall around 9621–9658. A break above that will take the market to around 10000. Any price action above 9621 may provide a good opportunity to reestablish short positions and sell any longs.



James Kupfer

Mr. Kupfer is a market professional and amateur stock market commentator. Disclosure: It is likely that Mr. Kupfer has or will enter a position in any security he writes about.


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Date: 12/29/08Rank: 4Comment: 
Date: 12/30/08Rank: 5Comment: Very clear on the trends and probabilities as indicated by the technicals. I need all these tutorials in order to educate my wooden head.
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