Key Technical Levels to Watch in the Markets

Adam over at MarketClub is out with his latest technical analysis video on the stock market. In it, he takes a look at the extended market as this rally just continues to march on and take no prisoners. He immediately points out that the Dow Jones is trading around 11,144 and that the 61.8% fibonacci retracement is just up ahead at 11,241 and could potentially be a source of resistance for the market.

Looking at the S&P 500, the fibonacci retracement situation is nearly identical as the market is trading around 1,211 and the retracement sits just ahead at 1,226. Adam points out that this will be a very key area to watch. By no means is he recommending you short this market just yet as that's essentially a deathwish. Everyone that has tried that thus far has burned. However, it's always helpful to be cognizant of key levels to watch in the markets. Click the chart below to watch the video:



Those above fibonacci levels are something to keep an eye on and you should really only consider putting out shorts once the market starts showing signs of weakness first. In the mean time, it never hurts to lock in some profits, trim some positions, and raise cash levels. While hedge funds will almost always have short positions on, you have to remember that they've been burned by the majority of those positions as of late. This technical analysis is obviously more from a market timing perspective and you can view MarketClub's latest video analysis here.

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.

Market Set To Head Lower? A Technical Look

Late yesterday Adam put out two more technical analysis videos taking a look at the broader picture by examining the Dow Jones and the Nasdaq. Let's first start with his video on the Dow Jones Industrial Average. He uses two technical tools first by simply drawing a trendline from the highs in 2007 and you'll see on the chart that we are currently bumping right around that downtrend line which should serve as resistance. Things become even potentially more negative on a technical level when he lays out a fibonacci retracement and we see that we are also right around the 50% retracement, typically a very strong level in terms of resistance or support (and in this case, it's resistance).

Lastly, couple this with the fact that the market has been trading sideways in a box for the past month and you've got all the components for a large move coming. Adam thinks this consolidation will lead to a move lower in the markets. He points to the divergence in the MACD as cause for concern. The MACD has been downtrending for the past month or so while the market essentially trades sideways. Such a divergence does not typically signify good things to come. Either way though, just play the trading range we've established in the Dow Jones. If it breaks out above the 10,500 level then it's probably heading higher. However, if it breaks down below support around 10,285 then watch out below. And if we break lower, Adam has set 10,100 and even 10,000 as downside price targets. Click the chart below to see his technical analysis on the stock market.



Secondly, he also analyzes the Nasdaq in his other video. By drawing the fibonacci retracement tool again he says we're now in "thin air" in the Nasdaq as we float between the 50% retracement and the 61.8% retracement. He thinks that the longer the Nasdaq dawdles in this area, the weaker it gets. Adam highlights 2,059 as a very key level in the Nasdaq as it is the major support level from last month. If the Nasdaq breaks down below that level, then watch out below. Check out the rest of Adam's thoughts on the Nasdaq.