Dow Under 24,576 - DJIA Afternoon Update 12-6-2018
The situation on the DJIA has improved when compared to being down over 700 points earlier today, but is not vastly improved versus the predicted opening predicted by Futures Fair Value this morning.
There are any number of reasons that the news points to as to why the DJIA is declining - continuing trade tensions with China, the arrest of Huawei's CFO, the recent interest rate inversion, forecasts of recession either next year or the year after, etc., etc., etc.
But a simple answer is that the DJIA has been near the top of a long-term range that runs from 10,240 to 28,672 for a while now. As a reminder, there are 9 levels which are:
- 10,240 - 12,288
- 12,288 - 14,336
- 14,336 - 16,384
- 16,384 - 18,432
- 18,432 - 20,480
- 20,480 - 22,528
- 22,528 - 24,576
- 24,576 - 26,624
- 26,624 - 28,672
The all-time high on the Dow was 26,951.81 which was within the 9th level - although near the lower end.
When the price of a market, or a commodity such as gold, nears the top of a range one of two things is going to happen. It will either punch through the top of the range where it can continue to move higher in a new leg of a bull market or it can fall back down. Of course there are other options. It could travel sideways, rise to the next higher level and then fall back, etc. But the two basic choices are higher or lower. Stay within the current set of ranges or move to the next higher set. In the case of gold back during its bull market it reached a high around $1,900 depending on how you choose to measure - intraday, daily, etc. The high end of the range for gold was a little above $1,950. So, where the gold price stopped was not terribly surprising either in terms of its range or the psychological level of $2,000 per ounce.
We shouldn't be shocked either that the DJIA would near the top of a long-term range and see some price action to the downside. We do not yet know for certain whether the downside movement will be sustained. A close below 25,088 for the Dow will indicate the market has taken a more bearish stance. Closing below 24,576 would move the market from the 8th level into the 7th level. There is nothing magical about 24,576. It is merely the boundary between two levels. The Dow has crossed above and below it several times recently. However, it is good to just be aware that it straddles two levels and a close below 24,576, if sustained could be an early sign that the market may slip further. But really, until we get the December monthly close, any of this is just speculation.