How far will the market go? In the short-term, you should always check to see where resistance is. In the chart below of the Dow-Jones average (click to enlarge), note the market ended the day jus
t at its 50-day moving average. More importantly, it is instructive to check the Fibonacci Retracement tool I discussed in class just before Thanksgiving. This is included in the graph.To add a Fibonacci Retracement, go to the Annotation screen (click below the image to get this). When the Java window appears, click on the Fibonacci Tool as shown in the upper portion of the graph.
Holding the left mouse key down, drag the mouse sideways and down:
(1) From the most recent significant high, to
(2) The most recent low. Once there, release the mouse key.
Note how the most likely place for a resistance point, the 38.2% retracement (the first line) is essentially where the market is now approaching. Is it likely that the Dow-Jones will reach this? Check the RSI. It is above 50 (indicating the beginning of a possible uptrend) and it is not close to being overbought. So the potential is clearly there. Also, check to see if there are any major economic statistics this week that if bad could derail this uptrend. There is nothing on the horizon like the employment report of last Friday. So, it is reasonable for the market to move past its 50-day moving average and test the 38.2% retracement at 9,164.
There may well be a "Santa Claus" rally as this year comes to an end, as the bailout (part 1) and promise of an extensive stimulus package will act like the "rumor" in the old saying buy on the rumor, sell on the news. So, early next year, there may well be some kind of correction. But, the relevant question is from what level will this correction occur? We'll have to wait until next semester.
