Yesterday, on boxing day, the Dow jumped 1000 points from its 52-week low which, coincidentally, was also set yesterday. Never a dull moment. But, what does it mean?
Looking at the weekly chart above, at least IMHO, it means only a (small) recovery of the damage that has been done since the start of October when $INDU almost touched 27.000. However, it is nowhere near enough to change the structure of the market back to bullish.
The break below support at 23.500 last week confirmed the end of the series of higher highs followed by higher lows. This happened after a first serious warning signal was sent at the start of October when the market could not penetrate its previous high that was set in January.
That break opened up the way to a price target around 20.500 that can be derived by measuring the height of the range and projecting it below the breakout level. Any rally at the moment is expected to find resistance around 23.500, or maybe the range between 23.500 - 24.000.
This structure suggests that we have moved from a market where you could "Buy the dips" to a market where you may want to "Sell the rallies".
I am not sure if a rally AFTER Christmas counts as a Santa rally but if it does we may want to "Sell the Santa rally"
So a 1000 point rally .... That don't impress me much.
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Julius de Kempenaer | RRG Research
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About the author:Julius de Kempenaer is the creator of Relative Rotation Graphs™. This unique method to visualize relative strength within a universe of securities was first launched on Bloomberg professional services terminals in January of 2011 and was released on StockCharts.com in July of 2014.
After graduating from the Dutch Royal Military Academy, Julius served in the Dutch Air Force in multiple officer ranks. He retired from the military as a captain in 1990 to enter the financial industry as a portfolio manager for Equity & Law (now part of AXA Investment Managers).