Two blogs in one day... this one will be short and to the point.
I will write it now because, unfortunately, I have to go to Burlington tomorrow to attend the funeral of the husband of a cousin of mine I was pretty close to growing up. 58yr old guy who was fit and vibrant, taken by cancer after a long, hard battle. Cancer sucks.
Anyway, as some of you know, I spend most of my time doing fundamental research (financial statement analysis, building models etc) but I do glance at charts here and there because it takes so little time to do so and can sometimes offer insight on entry and exit points.
Today I glanced at the Dow Industrial Average and the S&P 500. What I was looking for specifically was "Retracements" since the Trump Rally in early Nov. What are retracements? Typically they look at how much a stock or index will retrace over an entire move. They are usually portrayed as Fibonacci (Italian mathematician) numbers which show sequences...yada yada yada (not to get too in depth here). Basically, retracements happen, like Fibonacci sequences, quite naturally, as buying (or selling) exhaustion occurs. Look at the chart below...looks like buyers are exhausted and don't want to buy any more. Maybe they do but at lower prices. Enter retracements to bring in new and rejuvenated buyers. Nothing goes straight up.
A picture is worth a thousand words:
Basically we look at the low on the Dow on Nov 7th at 17,883 and the high all through mid Dec and into early Jan at just shy of 20,000 (19,987). This represents the entire move. Now we take Fibonacci retracements and look at what levels the market should/could sell off to.
A typical retracement would be to the 38.2% level or 19,183 area (top green line). That would be a weakish retracement, which is to say, the market could re-energize and move to new highs. This retracement would represent about a 2.8% decline from today's close.
A 50% retracement to 18,935 (blue line in the middle) would be a moderate retracement. This retracement would represent about a 4% decline from today's close. Starting to matter a bit now.
A 61.8% retracement to 18,687 (lower green line) would be seen as a strong retracement or a bearish move that might leave selling exhausted for the time being but then, after a short run up, the selling pressure would resume again. This retracement would represent a 5.3% decline from today's close...that would be a nice entry point.
All of this voodoo witch craft is not an exact science but it can be helpful. I have found over a long career of investing that markets that are set up like this are classic retracement opportunities.
At this stage, I would bet (and we are) that we gravitate to 19,183 area at a minimum (the first stopping point being a 38.2% retracement). Let's see if I am right.