The Nikkei 225 index, which tracks the Japanese stock market has reached a new record high and is currently rising to a one-month high. However, is the current level of support for the Nikkei 225 index due to a reversal of a bear market, or due to an over-the-counter (OTC) trade?
If we look back at the history of the S&P 500 and other major indices, there are many indicators which indicate when support levels are set. For example, in the early days, the Dow Jones index was expected to reach its maximum level in August; however, a sudden pullback brought the Dow index down almost two hundred points in a short period. However, the Dow did not suffer a large loss. A close analysis of the recent history of the Dow index is very telling.
Over recent months, the Dow index has reached its low point on five occasions and then quickly recovered to reach a new high point. On each occasion, the low point of the previous day was followed by a rebound to reach a new high point. So, what is the pattern of the Dow over recent months and how does it compare with the patterns of the other markets?
In the stock market, price trends are similar. If one index reaches its low point on a daily basis, the next day the index will rise to its highest level. However, if that same index suffers a sharp pullback from its high point on the previous day, then it will fall back to the low point. Over recent years, there have been a number of strong support levels for major indices in the United States including the Dow index and the NASDAQ.
When the Dow index reaches one of its monthly highs, then that is an indicator that it is approaching its strength level. There are a number of indicators which suggest when the strength level for an index is near its support level, and when it is above its support level. The following three indicators will help identify when the strength level is near its support level.
First, there are support levels, which are the resistance level for an index. For example, if the Dow index were to hit its maximum level on the daily chart, there would be an implied level of support of fourteen hundred points, which would indicate that bulls are likely to hold their positions until the end of the trading session.
Second, there are resistance levels, which are levels that a seller is willing to pay to get out of his position. If the Dow index were to reach its support level, there would be an implied level of resistance of sixteen hundred points, which indicates that bulls are unlikely to buy again before the end of the trading session.
Finally, there is a key resistance level, which is the level from which the S&P 500 index cannot gain more points in one trading session. If the Dow index were to hit its one-month high on the day of this implied resistance level, it would indicate that the market has already entered a bear market.
Bulls will enter a bear market when they believe that the price action has shifted. In other words, they are buying stocks because the market has shifted to a bearish direction. If the market has moved in the opposite direction, then the bulls are likely to exit their positions.
Once the bulls’ exit strategy has been established, they will usually continue to buy because they anticipate that the price will move higher. However, there are times that a bulls’ buying spree will become a buying freeze, because the market has already entered a bearish direction, and they are likely to exit.
As a long term investor, there are a number of reasons why the bulls will not enter a bear market. However, the most important reason is that they don’t want to take any losses.