Tuesday, 4 February 2014

How low can we go?

I have mixed feelings about this fall in the market. On the one hand, I'm sitting on the sidelines, capital safe from further harm. On the the other I need the money that further rises would bring.

It's hard to know, when the market falls for days on end, whether we are in the beginning of a major decline or whether this is just a pull back. The jury is still out. The Dow is falling hard and fast. It has broken the 200 day moving average and several potential support levels. So it is well on its way down. Where will it stop?

  • The 200 day moving average may still provide a barrier round about here. 
  • Then there is a new 38% Fibonacci at 15000 (I had to redraw using a lower low since the first one I drew is pretty much swept away.) This 38%  has the advantage of sitting near a round number. 
  • Then there is horizontal support at 14750 which has held the market up three times. 
  • And finally there is 14500, or there abouts. This is the most significant potential level. It is half way back from the peak we have recently passed to the last time the market touched the long term support diagonal that has held the market up on earlier pull backs.
If the market were to break that last support we could say that we were no longer in a pull back, no longer in the bull run, but that the market was on its way down. 

I have shown several time period graphs to illustrate the point. 

The six month graph show 
  • the break of two potential support levels 
  • the piercing of the 200 day moving average 
  • and the 15000 and 38% Fibonacci coincidence.

The one year view which shows:
  • how well the 200 day moving average has provided support
  • the 38% Fibonacci and the 50% support with another potential horizontal support at 14750
  • and the diagonal which represents the final level of support in this bull run

Finally we go back to the beginning of 2009 and the start of this latest bull run. We can see 
  • the origin of that big support line I have drawn 
  • its two touches in October 2011 and November 2012. 
  • Will it hold this Autumn too? If we have to wait that long to find out we are in for a dismal 2014.

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