The market internals continue to improve on a daily basis. The cumulative advance – decline line for both the S&P 500 stock index and the NYSE are at all time highs. This basically confirms that the rally off of the February lows has broad market participation, which is a good sign going forward. It’s likely that the stock market indices will be making all time highs in the near future also.
So what is a logical upside target for this next possible advancement?
I’ve been following this pattern in the Dow Jones Industrial Average, which if it continues to hold, suggests that the Dow is likely to move above 20,000. The chart above, which is a bit messy, tells the story.
In 2009 the market bottomed and reversed sharply. Once the Dow had gained 74% off of those 2009 lows, we experienced a “flash crash” in 2010 that saw a 14.6% decline in the average.
Once support was found, the market continued to make a new high and once it had nearly doubled in value (99% to be exact) off those 2009 lows, the market found resistance during the European debt crises and proceeded to decline almost 20%. Actually the S&P 500 declined 20% (which is a typical bear market reading) however it was so brief that it probably doesn’t constitute an official bear market.
So now we use those 2011 lows as our anchor. From 2011 to 2015 the Dow gradually advanced to gain another 74%. Then in August of 2015 we experienced another similar “flash crash” such as the one we had in 2010 (after advancing 74% off the 2009 lows).
It’s an interesting pattern that could simply be a coincidence. However after studying historical price movements I have noted that these patterns can oftentimes hold up for awhile. So going forward we can project a potential upside target for this advance by multiplying the 2011 low point by the 99% advance seen during 2009-2011 and this equates to Dow 20,705. Time will tell.
To conclude, for long term investors this is information that isn’t necessary. Having a well defined plan in place that you’re comfortable with, is the most important thing. No one knows if this pattern will continue or fade. No one knows if the Dow will shoot through 20,000 and keep rising, or hit this projected target and fall like it did in 2011. Control what you can control and leave the rest to entertainment.