So far, 2014 is presenting a tricky environment for investors. Especially so when you consider how stocks rose in a near straight line off the 2009 lows, removing much of the need for stock-picking skill. With defensive stocks, commodities and bonds all outperforming the broader U.S. stock market, many momentum investors and are getting caught on the wrong foot.
Click to EnlargeIn the bigger picture, I believe that the blowout sale in 2009 marked the end of a secular bear market (for the S&P 500) that began in the first half of 2000. The flip side of this is that a new secular bull market rose out of the ashes in 2009, and now that it’s in its fifth year, it likely needs some digestion time.
Within so-called secular bull markets, we get cyclical bull markets, and the cyclical bull market off the 2009 lows (after five years) is now showing clearer signs of wanting to come to an end sooner rather than later. And this brings me to the Dow Jones Industrial Average, which is showing leadership in this late cyclical bull market. But so far in 2014, the Dow is struggling to hurdle itself over that pesky but defined line of resistance.
For what it’s worth, I believe that if and when the DJIA manages to clear past the 16,600 mark, it would also pull the rest of the market into one last hoorah for the current cyclical bull market.
Click to EnlargeThe DJIA is still well supported in its structure. The early February low came at the 200-day simple moving average (red line) and the recent higher low in mid-April was also quickly bought up, all of which is visibly putting more pressure on the 16,600 resistance line.
This line of resistance has offered many bulls and bears the path of maximum frustration as the breakout-fake-out double punch is jamming it to investors right when and where it hurts the most (at the top of a bull market). The 60 minute chart of the DJIA looking back a few weeks shows this best.
For the time being, the path of least resistance remains to the upside and if and when the DJIA can finally overcome the 16,600 area on a daily closing basis with some conviction, then upside toward 17,000 – 17,200 should open up.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
