Drop the confetti, cue the band, and light the fireworks because on Friday, the Dow Jones Industrial average reached 15,000 for the first time ever. For traders, 15,000 is a psychological level and psychological levels do hold significance.
In theory, when these levels are reached as part of a bull market, traders should get that warm and fuzzy feeling like we all did when Phil Mickelson finally won the Masters but what does it really mean for the market when all emotion is stripped out?
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We went back and looked at the last three major levels and where the Dow was seven trading days after it crossed the level.
- 14,000- Up 2.35 percent
- 13,000- Down 1.25 percent
- 12,000- Up 1.99 percent
Also worth noting, these levels didnt serve as the strong support that traders believe they are. The 12,000 and 13,000 levels were tested and failed after initially breaking out.
Now that weve looked at the past, what do the charts say about the future? Once a stock or index reaches an all-time high, finding strong levels of resistance are nearly impossible but if we draw the upward trend line of the ascending channel of the Dow (see the chart below), we find approximately 300 points of upside.
Of course, that doesnt mean that it wont run into resistance along the way and it doesnt mean that the Dow will add another 300 points any time soon.
How about the downside? What are the levels of support? The 50 day moving average currently sits at 14,5113 percent below current levels. Above that, there is a weaker support level at 14,537 and 14,715.
Technicians confirm moves by looking at volume. Despite some impressive moves, volume has formed a downtrend since April 25. This is a troubling sign that might indicating the strength of the rally is drying up. RSI currently sits at 64approaching overbought conditions but trending up. Volume and RSI contract each other making it difficult to gauge where the market goes next.
What to do now
Although the market has fallen back below the 15,000 level intraday, reaching that level was significant. However, its safe to say that looking at it from a purely technical perspective, it holds very little weight. For that reason, traders should look at the chart and play what the chart is saying. In this case, its hard to fight the upward trend. No need to change your thesis until technical levels break.
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