Despite this tame statistic, the Dow has managed to fall by a much greater 775 points since achieving an all-time high on 18 September. To keep this current pull-back in perspective, the 4.9% fall to date does not rate as anything unusual given the high standard deviation that has characterised the market over the past few years. There remains nothing on the Gann-chart to suggest the prevailing uptrend has been broken.
My short-duration chart of the Dow does bring up some secondary resistance at the recent highs however, and we must remain mindful of this. That resistance – anchored by the line representing a 50% rise from the October 2011 low – is something I have highlighted in earlier updates, and this band (defined as 15,589- 15,606) remains of nuisance value only. It is still my view that the major target centred on 16,175 will ultimately win the day.
There may be no sign of either the Democratic-led Senate or the Republican-led House blinking first in public, but there will be serious discussions taking place behind closed doors. A timely resolution to the debt negotiations would coincide with seasonal strength into the year-end, with plenty of time left for my upside target to be achieved by the New Year.
Recommendation: stay long. Target 16,175. Stop-losses can be activated on weakness below 14,350.