Hello MarketClub members everywhere, today I'm going to be looking at some key levels in the markets. If these levels are breached, it would indicate a further correction to the recent rallies. For the past 4 to 5 weeks the equity markets have been moving steadily higher and are now extremely overbought. That condition alone does not necessarily translate to the markets correcting, however, 85% of all stock market newsletters are bullish on equities. History has taught us that when there is a large consensus of people thinking the same way the reverse occurs as there is no one left to buy. The markets could well be at a consensus crossroads right now.
Here are some of the levels that I'm looking at to get an early indication that a correction could come into play.
DOW
Last Friday the DOW (INDEX:DJI) closed at 17,602 and as I write this, the Dow is lower for the week and potentially could be putting in a weekly reversal. The two levels that I'm watching closely are 17,481.49 and 17,328.69; the latter represents a parabolic level. Should both of those levels be broken, I would expect to see further downside action. It remains locked in a broad trading range.
S&P 500
The S&P 500 (CME:SP500) closed at 2049.58 last Friday and is lower for the week as I write this report. Today I'm watching the 2041.16 area which represents a three-day low. I'm also watching the 2023.91 level which, if broken turns the PSAR negative. It remains locked in a broad trading range.
NASDAQ
As I outlined in yesterday's post, this index has been the weakest of the three indices. The NASDAQ (NASDAQ:COMP) just reached its 61.8% Fibonacci retracement in the last couple days, normally a 61.8% retracement level is a natural resistance area. The key levels to watch for this index are the 4772.41 level which is a three day low, and 4678.87 which represents an area if broken would turn the PSAR negative. It remains locked in a broad trading range.
Gold
Gold (FOREX:XAUUSDO) moved to the sidelines on March 21st and avoided today's sharp drop. The key level I'm watching today is $1215.85. Should this level be broken, it would move gold into an intermediate negative position. Some time back I talked about a cyclical low coming in the April/May period. Previous recent lows for gold have occurred on March 12, 2015, August 3, 2015 and Dec 2, 2015. Moving that 4 to 5-month cycle forward brings us to a possible low period sometime in April or possibly May. As always I will rely on Trade Triangles to confirm a low and get me back in the market.
Crude Oil (MAY)
Yesterday, I mentioned a small negative divergence in the RSI indicator, indicating that crude oil (NYMEX:CL.K16.E) may have topped out for the moment. Here are some key levels to watch. The first level is $40.41, which represents a three day low, the next level is $38.49 which represents an area if broken would turn the PSAR negative. If either of these levels are broken to the downside, it would indicate further defensive trading action.
Stay focused and disciplined.
Every success with MarketClub,
Adam Hewison
President, INO.com
Co-Creator, MarketClub
