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Sunday, 13 July 2014

140713: What goes up does not have to come down, but

What goes up does not have to come down.

The classic story of stocks and shares is that of a small amount invested which, when left in position for years, grows into a fortune.

This is illustrated by the following chart of the Dow Jones Industrials Index.

The graph shows that the DOWI grew from 1,000 in 1980 to almost 17,000 today, a 17-fold increase in value. There is little doubt that it will continue to rise in the future.

However, the market sits in judgement all the time. When the value grows too rapidly, it deems a correction to be necessary to bring it back into line.

A simple line joining the Peaks (a Resistance Line) and another joining the bottoms (a Support Line) delineats the Range within which it is "permitted" by market opinion to move.

The pattern followed by the Dow (and other indexes) is to fall sharply when it hits the Resistance Line (with some lee-way as to where the turning point will be). The Dow (and other indexes) has now hit this Resistance Line and will surely, in the near future, suffer a rather severe correction.

On the other hand there are those who say there is no pattern!!!

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