Key Level to Watch in the Stock Market

Adam over at MarketClub just recently put out his latest technical analysis video on the Dow Jones. In it, he identifies a key level to watch in the market as we've started to see a few distribution days. While he is by no means saying the market will crater from here, he is definitely cautious. Drawing a fibonacci retracement from the highs in 2008 to the lows in 2009, he starts to outline a clear area to watch out for. The Dow Jones recently traded around 11,254, right at the 61.8% retracement level, an area Adam feels the market is bound to find as resistance. Thus far, the market has failed at that level and declined to the present 11,000 region. You can hear his latest analysis in the video below:



Simply put, he feels it's time to protect some capital by reducing some long exposure as there's nothing wrong with taking some profits. Head to MarketClub's latest look at the stock market to hear his thoughts.

This technical look coincides with a few other heedful stances as we noted hedge funds were selling equities and market strategist Jeff Saut recommended caution. Not to mention, we also saw legendary investor and former manager of the Quantum Fund Jim Rogers start some short positions and we also started to see emotional reactions often found in the investor psychology cycle as the market booms from peak to trough and back again. Overall, it seems many are becoming more cautious on the stock market in the near-term and the technicals seem to agree according to Adam.

Market of 2010 = Market of 1929? Historical Comparison

Adam and MarketClub just posted up an interesting analytical video where they look at whether or not this is deja vu all over again for the stock market with historical comparisons to 1929. They examine the current 2010 market and outline the similarities to past markets. History often repeats itself, especially in market patterns. Adam notes that this chart is not meant to scare people, but rather to keep in the back of your mind as a possibility given the ferocious nature of bear markets and their massive gyrations. After all, people often become complacent when everything is fine and dandy and stocks are heading higher. The red underline in the chart below highlights the part of the historical pattern that the 2010 market has already completed. As you can see, the 1929 market fell drastically lower after completing that pattern. Click below to watch their analytical video:



They highlight that investors are nervous, especially the babyboomers who are worried about their retirement funds. If the market starts to drop dramatically again, you can bet there will be a stampede to the exits of investors wanting to preserve what they have left. Just like the market of back in the 1930's, this market has seen a massive sell-off and a strong reflexive rebound. The same pattern occurred back then and was followed by a massive leg down. Now, obviously we're not in the Great Depression, but we've certainly been in the great recession. While the severity of that 1929-1933 bear market might not be replicated, there are still chances we could see the massive swings so often associated with bear markets.

Again, this is only to highlight possible historical similarities and is not meant to be some harbinger of doom. In the markets, it always pays to be nimble and to avoid complacency. Keep your eye on the fibonacci retracements and the overarching technical pattern of the stock market for clues as we go forward. As they always say, the trend is your friend.

Technical Analysis Roundup: Stock Market, Treasuries, & Trends

We haven't done a technical analysis roundup in some time so we decided to post up some charts on various topics. Included in this post is:

- A look at the Dow Jones
- A possible trade in long-term treasuries
- Historical comparisons between 1930 and the current market
- And a look at a multi-decade stock market trendline

Since a lot of people seem to be worried that the primary trend in the markets has recently been violated, Adam decided to create another technical analysis video on the Dow Jones Industrial Average (DJIA). Regarding this video, he writes, "For some time now we've been very concerned that all the major indexes are in the 'thin air' and have exceeded some key Fibonacci retracement levels. This new short video explores that and looks at a key Japanese candlestick formation that could really make a difference and be the first clue in the demise of the Dow. I'll also show and share with you a specific number to look for in February. Should this level be broken, then it will signal a major reversal to the downside for the Dow."

Below he outlines some of the retracement levels that could act as support if the market starts to break down:



He outlines two key levels to watch in the Dow Jones Industrial Average. Firstly, he notes that if the market closes below 9,678 then look out below. Secondly, based off of Fibonacci retracements, he identifies a downside target level of 9,712. Adam and MarketClub are currently out of the market as they let the prices dictate the action and wait for a better signal. They are definitely very cautious here. Watch his video for further technical analysis insight.


Secondly, we wanted to highlight something that we've noticed recently regarding technical action in long-term treasuries. Just yesterday we posted up Oaktree Capital and Howard Marks' plays for inflation and shorting long-term bonds was one of his suggestions. Not to mention, we've covered numerous hedge funds that have been in curve steepening plays as they bet on higher interest rates. Now, it could very well be a longtime before we truly see signs of inflation. However, there seems to be a trading opportunity at hand. See our annotated chart below for the play:

(click to enlarge)

Basically, long-term treasuries have rallied right up to the 50-day moving average and a previous support level. Both of these are now resistance and the short-term trend is downward. Additionally, the iShares 20+ Year Treasury exchange traded fund TLT seems overbought, you could have a low-risk setup with clearly defined exit points.

Lastly, we also wanted to post up some charts from Steve Puri. He highlights some historical trends to put the giant stock market rally of 2009 into perspective. Given that the market has sold-off hard as of late, Steve points out a chart that could really scare you by comparing the current stock market to that of 1929-1930, where after a large rally the bear market returned and another leg down began:

(click to enlarge)

Potentially scary stuff there as bear markets are known for their vicious rallies and declines. Are we heading down further? We'll have to wait and see, but it never hurts to be cautious. We also wanted to highlight another chart Steve posted up regarding long-term trendlines. The chart he posts illustrates that in 2009 we broke a long-term trendline, but the market has subsequently rallied right back up to it. He suggests to go short as this will serve as resistance and to exit the short on a monthly close above that trendline he's drawn:

(click to enlarge)

Through all of the above, keep in mind that technical analysis is in the eye of the beholder. You can almost always annotate charts in a way that supports your case. That said, it is definitely one of the many useful tools in the investment toolbox. Note that this isn't meant to be some doomsday post. We just wanted to share these charts because they do make you stop and think.