|
There is great uncertainty in equities markets right now, with the fallout from the sub-prime mortgage debacle dealing a heavy blow to the Dow Jones Industrial Index. The sub-prime problem gives us a view of the fundamentals, but how strong was the technical side for the new all-time high on 17 July 2007? Before we take a look, let’s quickly review some other areas of analysis using big-picture milestones as a point of reference.
Chart 1 is the daily bar chart of the Dow Jones futures contract (DJ-SpotV) over the past couple of years. The double bottoms of 20 January 2006 and 18 July 2006 have been marked. These lows came in at 10,680 and 10,730, respectively. The top between the two lows, 11,700, came on 10 May 2006. The reference range from the first of the lows to the top is 11,700 – 10,680 = 1020 points. Add 200% of this range to the 18 July low we come up with a 200% target of 10,730 + (2 x 1,020) = 12,770.
Chart 1 – Dow Daily Bar Chart – Double Bottom
click chart for more detail
The top on 20 February 2007 was 12,815, very close to the 200% target factored from the Double Bottoms. The 200% rule for Double Tops and Bottoms is David Bowden’s rule and it worked extremely well here.
Chart 2 shows the latest market action and the all-time high of 17 July this year. The period from the 18 July 2006 low to the 20 February 2007 high can be used as an historical reference range for considering current market conditions. This range is 12,815 – 10,730 = 2,085 points.
Chart 2 – Dow Jones Daily Bar Chart – Current Market Action
click chart for more detail
Taking our reference range and adding it to the 5 March 2007 low (12,030) we get a target for a repeating range of 12,030 + 2,085 = 14,115. The July 2007 top is in place at 14,097, close enough to a repeating range to keep me happy. It should not have escaped your attention that it is also basically a one year anniversary from the 10,730 low to the 14,097 high! That’s a definite time and price set-up on the Dow. I wonder whether the sub-prime mortgage players actually knew about it!
The Dow could be in some trouble. After the initial sell-offs from the July top it will take a lot to pick itself up off the floor. These are very interesting times. The best (for bears) and worse (for bulls) may be yet to come.
Until next time, remember … Gann rocks!
Noel Campbell
|