I charted the Dow Jones Industrial Average (DJIA, $INDU, $DJI) after the index closed on Friday, August 13, 2010, at 10,303.15.
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Two weeks ago I questioned if the DJIA chart had just swung its third strike and was heading lower. We’re only about 160 points below that mark
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I charted the Dow Jones Industrial Average (DJIA, $INDU, $DJI) after the index closed on Friday, August 13, 2010, at 10,303.15.
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Two weeks ago I questioned if the DJIA chart had just swung its third strike and was heading lower. We’re only about 160 points below that mark now, but we are below it with a scared group of investors looking for exits. Now the DJIA has fallen below its 200 day moving average (dma) even deeper too. The 50 dma held support on Friday, but only after breaking intraday on Thursday before recovering. Failing at the 200 dma was a pretty big technical event for the index, but we did have multiple warnings it was coming.
Along with the break of the 200 dma came the break of the trend line of higher lows that started with this recent rally at the beginning of July. Breaking this trend line opens the door to an even deeper fall still, as if the 200 dma break wasn’t enough. I drew two other somewhat horizontal lines in the chart below to highlight potential speed bumps the Dow could face. The first line is only about 215 points below the current Dow level. The next is not quite all of the way down to the July 1st intraday low, but could’ve been. I went with the more popular low from the past few months instead though.
Possibly more bearish than any of the trend lines and moving averages is the break of Williams %R below overbought on the 14, 28 and 56 day indicators. Such a breakdown doesn’t come often and now that we’ve seen a couple of confirmation days after it the warning bells have certainly rung now. Volume came up above average on Wednesday and Thursday on distribution (down) days which helps to pain the bearish picture. All of this together makes the lowest horizontal line look like it could be the most likely expected line of support in the near term with the DJIA giving up another 5%+ before it finds any solid footing. A fall that low would put the DJIA about 6% below its 200 dma which could help to limit its downside from there. The only potential line of hope could come from the 50 dma. As mentioned above it broke intraday on Thursday, but recovered. If it can continue to hold now, even after the warning shot, the Dow will have a good chance to move higher.
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