by Serge Berger | October 4, 2013 8:49 am
To answer the question posed in the title about the Dow Jones Industrial Average: No. It doesn’t matter in the greater scheme of things.
As markets continue to assess the current political standoff in Washington, stocks have thus far held up relatively well. Technically speaking, a few first support lines on the charts have broken, but the damage remains contained. The other side of this is that the longer the uncertainty in Washington persists, the more markets will start to care and potentially set up for a more meaningful selloff.
Since the last FOMC meeting on Sept. 18 — when the Dow Jones hit a fresh year-to-date and all time high — the average is about 4.35% lower. At the same time, lower too is the U.S. dollar and bond yields, which to me flashes the bigger warning signal than the Dow Jones slipping below 15,000.
Don’t get me wrong — big, round numbers on the equitably indices have a certain magnetism to them, which is why it is not uncommon to see indices chop back and forth near big, round numbers before continuing on. However, a) not all big, round numbers are created equal, and b) certain patterns, moving averages and confluence levels hold much more technical significance than a round number, which is really only “significant” to the extent that it contains a few zeros.
When the 117-year-old Dow Jones squeaked to a new all-time high on Sept. 19, it also had reached the upper end of a six-month-long upsloping trading range and thus became overextended. As the post-FOMC drop was large-cap-led — which was easily spotted by relative outperformance over the past two weeks by the small cap segment — the Dow Jones quickly sliced through a few first moving averages, and on Thursday marginally closed below the 15,000 mark.
From here, a break below 14,700-14,750 area would not only snap a multimonth support line but also the Dow Jones’ 200-day simple moving average, which carries far more technical significance than a break below 15,000.
Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free Weekly Market Outlook Video here. As of this writing, he did not hold a position in any of the aforementioned securities.
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