It’s been a while since I last did a major market outlook… mainly because, with so many different stocks, sectors, etfs, and so on, the analysis of the overall market is not as relevant as it used to be. That being said, it is always nice to know what the overall direction is every now and then.
Basically this push higher that we have experienced over the last 3 months is somewhat insane, considering that most of it came through companies still reporting horrible numbers, yet people satisfied??? I do not think I will ever truly understand how to play earnings…
Thanks to technical analysis, I can analyze stocks and markets without having to worry about the fraudulent numbers and diction that various companies report.
All that being said, where is the overall market going? I chose to just analyze the Dow Industrial Averages, as all 3 major markets are really doing the same thing more or less, so why waste time?
The wedge-triangle type pattern in the 3 month chart below is somewhat common in equities that experience rapid boost higher off a minor downtrend. Obviously, the market has got to breakout one way or the other. The question is which way, and then how much.
I have been playing around with bollinger bands lately. I’ll create a more in-depth article about them specifically later on, however, to make it short, a close below 9300 could lead the market to pullback a little. This chart has two sets of bollinger bands going: one with a standard deviation of 2 (red) and another of 1 (blue). From the labels in the chart, you can see that the top gap is a buy zone and the bottom is a sell zone.
All this is nice, but how low can this market actually go. While I still believe in my 2000 point higher prediction, it was never going to be a straight shoot up. Using the Fibonacci tool, we can see that the Dow just crossed the 50% retracement, but the move looks kind of pathetic.
Combined with the fact that September is historically the worst month in the markets, I would say that we could see a brief pullback to around the 9000 level… maybe even a mini-range between 8500-9000; however, anything below 8500 could have us coming straight back down to who know where.
Thanks to MarketClub you do not have to just take my word on it. Check out what they think of the Dow.