The markets have rallied to new highs, but, the way that it was done was not very inspiring. We’ve had an immediate reversal and and now are trying to successfully put in a half way retracement of the advance from the recent low. A correction to the 15,236 level would be anticipated. I don’t expect that level to hold based on the crossover of the MACD (the light blue line crossing into the white line). Additionally we have a convergence with the MACD trending down while the markets are making new highs. This is all very bearish! The markets seem to be putting in place a broadening top.
Let’s take a look at the point and figure chart for the Dow Jones Industrial Average:
The longer that the markets move sideways the greater the downside risk for the markets. A count across from the 15,500 level (24 boxes x 50 points which is the size of each box x 3 point reversal chart) = 3600 points. The downside price objective for the Dow Jones would be 12,100.
One has to realize, however, that this is the Fed’s stock market for awhile longer. A price count at the 15,600 level (8 x 50 x 3) = 1200. One last move could put the markets at 16,450 to 16,900.
The reward to risk ratio is not good 1200/3600………
Keep your stops very tight!