Can the Dow Jones Hit 21,000 Points This Year?

The Dow Jones Industrial Average (DJIA) is a favourite barometer for the US stock market’s performance. It’s probably the most widely recognised stock index in the world.

It’s also the oldest index in the world. When created in 1896, it only included 12 industrial stocks. Now there are 30 ‘blue chip’ names that represent a wide range of industries from healthcare to energy and entertainment. Each stock trades on either the New York Stock Exchange or the Nasdaq.

But how is the Dow relevant to Australian investors?

Well, if you’ve heard the expression, ‘When the US sneezes, the rest of the world catches a cold,’ you’ll know that whatever happens in the US markets usually has a knock-on effect worldwide. This is exactly what happened during the financial meltdown of 2008-09.

Because of this, I follow the US stock market very carefully.

So, let’s look at the technical picture. The chart below tracks the Dow Jones Industrial Index. Each bar represents one day:

The chart above shows that the Dow Jones has been in a strong bullish uptrend since 2013. At first glance, its momentum doesn’t look like slowing down any time soon.

When analysing the technicals, it’s clear that the Dow has been range traded. The first range, shown by the pink Tirone levels, was between 14,700 to 15,400 points. Tirone levels are a series of horizontal lines that identify support and resistance levels.

Unsure whether to buy stocks, the market sent the index to the 14,700 support level three times before breaking out of this 900 point range. This was over a six month period.

Shortly after breaking through 15,400 points, the market became trapped in the second Tirone level range. I show this with the red lines.

This was a much smaller range of 600 points. Interestingly, the market spent the majority of its time in the upper region of the Tirone range, demonstrating that the market is becoming more bullish on equities.

It has taken the majority of this year for the market to break through the major 16,500 resistance level. Now the market is in a clear uptrend, shown by the blue line.

The market needs to break through 17,000 points for the next bullish move to occur — this is a major resistance level. Alternatively, 16,500 is the closest significant support level. It’s possible that the market could bounce off 16,500 again before breaking the crucial 17,000 resistance level.

The bottom line is, despite the nervous news headlines, it’s difficult to argue against the market’s bullish set-up. And the bullish momentum doesn’t look like slowing down any time soon.

That should help all sectors, especially the sector I follow closest, resources. It has been a tough three years for resource stocks, but if the US market continues to rally it could be just the catalyst needed to push resources stocks higher.

Jason Stevenson+
Resources Analyst, Money Morning

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