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It’s been just over five years since the low of October 2002 that marked the end of the bear market in the US. That’s a great run in anyone’s language. The percentage rise is not as spectacular as the bull market run we have seen in Australia over roughly the same time period, but impressive nonetheless. The Dow has had its corrections along the way, in particular the sell-off during the first three quarters of 2004. That correction ended interestingly enough in October 2005, when the market started its ascent once again.
Let’s take a look at a chart to see what clues might be surfacing. Chart 1 is the Dow Jones futures contract (DJ-SpotV) from before the October 2002 low (7,180).
Chart 1 – Dow Jones Futures Contract – October 2002 to 2007 Bull Market
click chart for more detail
I have constructed a Resistance Card, a price forecasting technique of W.D. Gann’s, for the price of the October 2002 low (7,180). With this technique we are taking the price of the low, finding percentages (multiples) of that price, and using these calculations to provide clues on where to watch for support or resistance. Study the table below to see what pressure points this price provides.
Price of Low – 7,180
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100%
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7,180
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125%
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8,975
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150%
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10,770
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175%
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12,565
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200%
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14,360
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The top of the 2004 market before the first real correction occurred on 19 February 2004 at a price of 10,750. That’s close enough for me to call it 150% of the low. If you study the chart closely you can see that the top of the first big rally out of the low concluded at around the 125% level.
Where does that put us now? The 200% pressure point in Gann language is very important. Working with the October low of 7,180 we get a price of 14,360 to watch for resistance. The high at the time of writing is 14,290, only 70 points shy of the next target – and it’s happening at a very interesting time according to Gann’s time analysis techniques.
I first mentioned this 14,360 resistance level to our US clients back in November of 2005, when we were forecasting on the Dow. By that stage we had seen the success of the 150% pressure point and were excited about the potential for this number to be in the 14,000s. Now we are here, and it’s time to see what we can do with this potential opportunity.
click chart for more detail
Until next time…
Noel Campbell
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