Yes, 20,000 Does Matter, But Not In The Way You Might Think

• Twenty thousand,  a media point on the charts
• The real 20,000 event
• International markets that deserve a closer look

Twenty thousand,  a media point on the charts

For some time, our friends in the media have been touting Dow 20,000 ($INDU) as if something magical is going to happen when it is finally crossed. Round numbers often carry great significance on the charts as potential support and resistance areas, but this one does not. Chart 1 shows that 190 acted as a barrier for the 1946-49 trading range, the resolution of which was followed by a very worthwhile price move. The most significant resistance that has ever existed for the Dow was the 1000 mark, which stood as a barrier from February 1966 until late 1982. When that 1,000 level was finally surpassed it set the scene for the bull market of the 1980’s and 1990’s. Nothing like that exists today as the Dow is in a well-defined uptrend.

Chart 1

Now it is possible to argue that 20,000 will, in retrospect, turn out to be a long-term resistance level like 1,000 did, but we do not know that at this point. More likely it will not, as the long-term KST for the Dow, which monitors primary trends, has just gone bullish. The solid arrows indicate that such action has usually been followed by a worthwhile advance. By the same token, the dashed ones and the red ellipse warn that this is not the holy grail either. The most bullish thing about the toying with 20,000 as far as I can see, is additional advertising revenue for the financial media as they attempt to augment advertising revenue with slightly increased ratings.

The real 20,000 event

Having said that there is a far greater technical event that may be about to take place. It’s also at 20,000, well 20,585 to be more precise and it takes us almost half way around the world to Japan, where the Nikkei 225 is rapidly approaching a 25-year resistance trendline, as featured in Chart 2. A decisive break above the line, say to 21,500, would indicate that the whole period since the early 1990’s was one big consolidation formation and would set the scene for a substantial and multi-year advance. Note that the long-term KST is just slightly below its MA, so it is not yet in a bullish mode like the DJIA. A break above that 21,500 level would most certainly do the trick.

Chart 2

The technical position of the Japanese equity market also looks positive when expressed in US dollars. This is shown in Chart 3 for the iShares MSCI Japan ETF, the EWJ. Once again we can see that the price is resting below a 20-year resistance trendline, just above the $50 mark. In this instance the KST has just given us a buy signal and the price is bullishly above its rising 12-month MA. Between 2009 and 2012 the price completed and broke down from a head and shoulders top, but the break turned out to be a whipsaw. As in most situations this was followed by an above average move in the opposite direction to the false signal as the EWJ experienced a very robust advance in 2013. Fast forward to the current situation and we see another false head and shoulders break that took place earlier this year. If past is prolog, then we should see the EWJ experience a strong rally that takes it well above the thick green resistance trendline.

Chart 3

International markets that deserve a closer look

Apart from Japan other markets around the world have either, or appear to be on the verge of upside breakouts. Just remember that the following charts express these markets in local currency terms, so the NYSE listed unhedged corresponding country ETF’s may not have similar patterns due to the recent explosive dollar rally.

Chart 4 sets the scene with the MSCI World Ex US Index. Here we can appreciate the fact that prices peaked in 2008 and have yet to recover. Now the Index is above its 12-month MA and, given some positive long-term KST action, is on the verge of completing an 18-month inverse head and shoulders pattern under the dotted line.

Chart 4

One country that has already broken out from such a base is Singapore, in Chart 5. The breakout combined with positive KST activity suggests that it is ready to make an attempt at the 2007-16 green down trendline.

Chart 5

The Korean market in Chart 6 has a completely different pattern to most others as it has experienced trading range activity since 2011. Given the rising KST an upside breakout seems likely. Given the tight multi-year battle between buyers and sellers a worthwhile advance is likely to follow in the event that the breakout does take place.

Chart 6

Some of the beaten up markets are starting to look promising. Portugal (Chart 7), is currently selling at about 25% of its peak 2000 value but is now nudging through a 2-year down trendline. With the KST having just gone bullish this market looks like it might have great turnaround possibilities.

Chart 7

Spain (Chart 8) has also completed a small base and crossed above its 12-month MA.

Chart 8

Greece was selling at a hefty 785 in February of 2000 and is now around 30. Such a large drop does not qualify it as an investment opportunity. However, the trendline break, 12-month MA crossover and positive KST action certainly suggest that it may be one.

Chart 9

Good luck , good charting and Merry Christmas,
Martin J. Pring

The views expressed in this article are those of the author and do not necessarily reflect the position or opinion of Pring Turner Capital Group of Walnut Creek or its affiliates.