The stock market’s spin masters are working overtime persuading gullible investors to put money into equities.
The Federal Reserve’s money printing and the government’s support have injected confidence into the market. But those actions come at a steep cost. And make no mistake that in the end, the rich will benefit the most. The average Joe or Jane is not a meaningful investor.
Under these circumstances, what should prudent stock market investors do? At this time, consider keeping a close watch on two important stock market levels and also on the tail risk to the “mother of support zones.” Let’s explore with the help of a chart.
Chart
Please click here for an annotated chart of the Dow Jones Industrial Average ETF DIA which tracks the Dow Jones Industrial Average DJIA.
Note the following:
• The chart is monthly, giving investors a long-term perspective.
• The chart shows that the stock market has pulled back in the middle of the support/resistance zone.
• The support/resistance zone shown on the chart is a battleground zone.
• Investors should watch the lower band of the support/resistance zone, which is around the Dow level of 24,000 points. The equivalent in the S&P 500 Index SPX is 2,900.
• If the levels given above are decisively broken, the middle support zone shown on the chart will come into play.
• The chart shows that in March the stock market touched the upper band of the mother of support zones before staging a strong rally.
• Investors should not ignore the tail risk of the stock market approaching the mother of support zones again, even though the mother of support zones is far away at this time. In plain English, tail risk means an event with a low probability.
• On the upside, investors may want to keep a watch on the upper band of the support resistance zone, which is around 26,720 in the Dow.
• The chart shows that RSI is rolling over and is close to giving a sell signal. But a sell signal has not yet been given.….Read more at MarketWatch.
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