June 19, 2008, was the last time the Dow Jones Industrial Average (DJIA) closed above 12,000. Following a roller coaster ride that saw a near 50% decline before almost doubling, the DJIA is once again topping the 12,000 mark.
Can it stay above that level?
The DJIA is a price average of only 30 stocks. Expanding the horizon to also include the S&P 500 and Nasdaq-100 offers a broader picture of just how important Dow 12,000 is.
The S&P is trading above 1,300, and for the S&P, this figure is more than just a round-number benchmark.
The 1,300 mark hosts a cluster of resistance levels, which includes the September 2008 monthly red- candle high at 1,303 and the August 2008 high at 1,313.
The February ETF Profit Strategy Newsletter pointed out those resistance points and expected a reaction.
The S&P was rebuffed twice when it neared that area and recorded the biggest one-day declines since before Thanksgiving.
Little known is the resistance level for the Nasdaq-100.
After what’s been termed a “lost decade,” the Nasdaq-100 has finally been able to recapture exactly 38.2% of the points lost from the 2000 high to the 2002 low.
Fibonacci aficionados recognize the 38.2% mark as in important resistance level for a bear-market rally.
The 38.2% retracement is at 2,331 and was highlighted by the ETF Profit Strategy Newsletter on January 12. (The ETF Profit Strategy Newsletter continuously monitors the market’s vital signs and highlights important support and resistance levels.)
After that, the Nasdaq-100 turned down sharply from exactly this level twice, though it traded at 2,338 on Friday, however.
Before Friday, the performance of the three indexes had been somewhat fragmented.
With all three major U.S. Indexes hitting and perhaps exceeding major resistance levels virtually at the same time, it behooves us to pay attention to how they react. Thus far, the performance of the three has been somewhat fragmented.
A solid close of all three indexes above their respective resistance levels would be another check mark on the bullish side of the ledger.
However, there's a caveat. Sometimes the market finishes a long advance with a blow off spike.
Therefore, when buying stocks above resistance it's important to use the former resistance level (which now has become support) as a stop-loss level.
Flexibility might be needed as a drop below support would set up a shorting opportunity with a stop-loss at resistance.
Either way, the market's performance around current levels is likely to set the stage for the coming weeks, perhaps even months.