by Serge Berger | November 26, 2013 8:39 am
The answer to the question “Could we see the Dow Jones Industrial Average reach 20K?” is, as almost always, “It depends.”
Theoretically, upside is unlimited. However, since I can’t find much love among theorists because the nature of trading demands me to be a realist, I will point to the facts that upside is limited in any given time frame and depending on where in the cycle of the swing we find ourselves.
As a simple example, consider a stock that, barring any merger and acquisition deals, has traded higher for 10 weeks in a row and on average at least 3% per week.
For an investor with a time frame of multiple weeks, buying into such a steep slope and long rally without a break very much limits his upside potential. On the other hand, if this same stock belongs to a cyclically sensitive sector — i.e. tends to do well when the economy is accelerating — and the economy is just coming out of a recession, then the investor with time frames of at least a few months has much more upside potential.
So if we take a look at the Dow Jones through a technical lens, we note that in the early part of 2013, it broke past a resistance level that has been in place since 2007 — the peak before the financial crisis hit stocks. At the same time, if we consider the Dow’s price action since 1997, we see that from this long-term perspective, this breakout resulted in a push out of a 15-year sideways move, and thus should offer up plenty more upside in the coming years.
In other words, the 20,000 mark for the Dow, which is currently just about 25% away, is certainly reachable within the coming two to three years.
However, this does not make the analysis and conclusion in and of itself very relevant, because …
Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the Essence of Swing Trading e-book by clicking here. As of this writing, he did not hold a position in any of the aforementioned securities.
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