The Dow Jones, which covers 30 stocks on the New York Exchange but nevertheless gives a lead to world markets, has had a remarkable 24% run up since March 12 – a day earlier than our low. It is almost “London to a brick” that some profit taking will take place especially as the probability of this pace being maintained is extremely low.
The extent of the profit taking and the orderly manner in which it happens will be the key determinant of where to from here. Everything points to an orderly retracement, as many investors will not want to depart the market when there is still a new high to be reached a little down the track.
You will note from the chart below of the Dow Jones that the market has been well supported with a strong OBV and an oscillator that has matched the new high of the index. This is supported by the strength in individual stocks on the Dow Jones with only a small number actually looking weak. In particular IBM, 3M, Johnson & Johnson, Microsoft, Eastman Kodak are heading down and all represent great “put option” trade opportunities.