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Attached is a chart of the DJIA from the late 1990's to the present.
The line labelled 1 represents the implied upper bounds of the last bull
market (from 1982).
The line labelled 2 represents the lower bounds of that bull market prior to
2001/09/11.
The line labelled 3 adjusts those lower bounds for the consequences of
2001/09/11.
It was interesting and instructive to watch DJIA bounce between lines 2 and 3
in 2002/06 and subsequently find line 3 to be a resistance line in 2002/08.
The magenta fan lines labelled 4 are a Gann fan which has displayed
significant predictive ability over the last two years. For what it's worth, I
have not adjusted the fan lines since originally plotting them sometime in early
2001.
The line labelled 5 is the bear market resistance line since 2000/01/14.
The line labelled 6 is the initial support line for the bear market defined
by the high of 2000/01/14.
The unlabeled rising green line is the support line for the bull market from
1994-11 which had multiple (perhaps 13) confirmations of its validity (and which
I leave on the chart for that reason alone).
The moving average is 200 SMA.
All horizontal red lines are Fibonacci retracement lines over the stated
period (1932 to 2000).
The mid-point line of the "100 year" channel which is displayed in blue in
the lower right hand corner of the chart is somewhat suspect as MetaStock seems
to shift its bounds depending upon the time scale involved.
Of particular interest is the fact that DJIA apparently now regards line 6 as
a resistance line. My grounds for this assertion are that DJIA has risen to that
line, failed to penetrate it and bounced downward off it in the last three
trading days.
Some commentators have suggested that DJIA is putting in a reverse head and
shoulders formation with the neckline drawn through 9000 +/- and a right
shoulder defined by the recent low of 2003-02-13. While that remains possible,
it would appear from the line study that decisive upside penetration of line 6
is required to confirm any such proposition. In the absence of confirmation, it
seems more likely the bear market will continue in the short and intermediate
terms at least until the mid-point of the "100 year channel" is touched.
On the basis that the mid-point of such a significant channel is a natural
place of support, bulls may take comfort that the implied bottom of the current
bear market is 10% to 15% below current levels.
Whether it is reasonable to assume the "100 year" mid-point line will offer
significant support if the market falls to that level is another question upon
which I am hesitant. I would note, however, that over the last two years similar
support lines have offered fleeting comfort to the bulls before becoming lines
of impenetrable resistance.
All of which is simply offered as food for thought, in appreciation of your
contributions to the RealTraders Group.
Tony Pylypuk
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