Stockcharts.com, as well as other charting software services, offer a tool known as the “ZigZag” tool. The ZigZag tool is not an indicator—it simply filters out smaller price movements. Stockcharts has a default setting of 5% (although you can change this as you wish). The 5% setting ignores all price movements less than 5%, so we can see the forest instead of just trees, as Stockcharts describes it.
I’ve taken the default 5% retracement level on the ZigZag tool and applied it to a weekly chart on the DJIA. I’ve marked the time between corrections that occurred after a rally lasting more than a month. Sideways volatility up/down movements are thus ignored. This may be of interest to readers, given the Dow’s new breakout through the 17,000 level. What I’d like you to observe is the length of time since our last 5% + correction. As you can see on the chart, we’re normally due for some type of corrective action that exceeds a 5% after about 5 months. We’re well into the time frame now. It will be interesting to see just how much longer this market can rally until the next correction.
Keith on BNN
I’ll be on BNN’s MarketCall on Thursday July 17th, 2014 at 6:00pm. Phone in with your questions on technical analysis for Keith during the show. CALL TOLL-FREE 1-855-326-6266. Or email your questions ahead of time (specify they are for Keith) to firstname.lastname@example.org
Back next week
I’m only blogging once this week, as I’m on vacation. But I’ll post my usual two blogs next week when I return.