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How long will it be moving sideways?

Over the last year, the Dow Jones Indstrial Average (DJIA) has been moving sideways, prompting many to wonder if the index will break above its all-time high of 18,279 any time soon. Art Hogan, chief market strategist for Wunderlich Securities, told Oil & Gas 360® that the market is waiting for positive reinforcement before climbing higher – or worse news before taking a dive.

“The market, which is currently at or near all-time highs needs to see a series of positive catalysts to break out above the range and set new higher highs or, conversely we will need to see significantly worse news flow that would have us break down through the lower levels of support,” says Hogan.

The chance of breaking through the current floor on the DJIA seems unlikely though, according to a number of analysts who spoke with OAG360®. “From a technical analysis standpoint, there seems to be a lot of short term support at 17K which means, unless there is a recession coming – which there isn’t, that level should hold,” said Jason Constas, managing director at Scottsdale Capital Consulting.

“Currently the DJIA is holding up very well to declining earnings which ECRI (Economic Cycle Research Institute) saw coming six months ago, that is a good sign and it communicates to us that something good may be just around the corner otherwise there would have already been a major correction/drop due to the current economic slowing,” he said.

Dow

Source: CFD Trading

Looking at the DJIA, Paul Robinson, chief market strategist for CFD Trading, explain in a May 4 report: “Looking at the near-term levels in the Dow, traders will keep an eye on 18,184 on the upside, a breakout above and the all-time high at 18,279 becomes exposed. On a move lower trend supported running back to 2/2 will come into play, with an undercut of 17,764 acting as confirmation of breaking that trend-line. 17,546 is the next level of support followed by the 200-day MA at 17,478.”

Oil’s role

When asked about the importance of oil price movements when looking at the DJIA’s range, Hogan said that it is the more violent movements that correlate strongly with the market’s movements. “Over the last 25 years the correlation with oil and stocks has been about .003, not very correlated at all. When the price per barrel of oil was in a free fall from June to January the correlation was .7. It stands to reason that the DOW sees the recent stabilization in energy prices as a positive catalyst, and that has played out in the index action.”

Constas says that the reasons behind the price movements are also very important to the market. “Technical traders look at oil prices in two ways; either good or bad for the same move in oil prices. If oil prices drop because of some kind of breakthrough such as what happened with fracing, then a drop in prices is good for stocks and the economy. However, if a drop in prices is due to a slowing global economy – which is occurring now, then that is not bullish.”

The DJIA seems to have support at the 17,000 mark though, or else it would have already fallen through the low end of its range, the experts told OAG360®. In Hogan’s opinion, we would see a fall from the support the DJIA is seeing if there was a recession, a bad policy decision or global economic slowdown. He sees the first two as being unlikely and the third as being postponed by central bank interventions.

Breaking the barrier

The market appears to be well supported at 17,000, but it will take stronger growth numbers to break the upper ends of the DJIA’s range. When asked what could final push the DJIA over its previous high, Hogan said it would require the market to pick up coming out of the first quarter. “Better economic growth in the rest of 2015 and better concurrent earnings,” are what will help the DJIA break higher says Hogan.

20,000?  Awaiting the Next Big Surprise Innovation

Even if the DJIA does break above 18,500, it may be a while before we see the index hit a milestone like 20,000, says Constas. “I would not expect to see [the DJIA] reach or exceed 20K until the next big innovation,” he says. “We are due for a large innovation as we haven’t had one since the introduction of Windows ’95, which due to its graphical interface, allowed everyone to use a computer for the first time in history.”

What the next great innovation might be is anyone’s guess, but Constas feels it would take a real game changer to see the DJIA reach 20,000 and higher. “Steam engines, Ford [Motor Company’s introduction of] mass production – many innovations have caught the world by surprise and this is what propels the DJIA past levels of stagnation. These events are so huge that even in deep recessions, or even a depression, the world never looks back.”

Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. The company or companies covered in this note did not review the note prior to publication. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.

ECI Analyst

"Support levels" and "resistance levels" are often correlated to a moving average (often in 50 day or 200 day increments, there are others, just 50 and 200 are most common). The theory is that if the Dow weakens to a certain point, then it is considered under-valued by traders who then buy and consequently push it back up, in this case that bottom support level is the 17,764 and the next level is 17,546. If it goes below that threshold, then traders who follow that stat believe there is a selloff going on and they sell before they lose it all, which often pushes the Dow lower. And vice versa on the upside for a resistance level.  


Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.