I charted the Dow Jones (aka DJIA, $INDU or $DJI) after the markets closed on Friday, 5/14/10, when the index finished the week at 10,620.16.
//
The chart leaves a lot to be desired this week. I noted two weeks ago that my favorite indicator, Williams %R, was giving the sell signal.
=============
Article Content:
I charted the Dow Jones (aka DJIA, $INDU or $DJI) after the markets closed on Friday, 5/14/10, when the index finished the week at 10,620.16.
//
The chart leaves a lot to be desired this week. I noted two weeks ago that my favorite indicator, Williams %R, was giving the sell signal. That call was dead on, but now the %R indicator isn’t as clear. It has bounced out of the oversold range which is the bullish signal I like to see and had three confirmation days (twice between dips), but is dipping again. I’d like to think this still means the DJIA is in a longer term rally mode, but I worry that it’s no more than a longer dead cat bounce.
The moving averages are mixed too, although leaning bearish. Here’s how the ones I like to watch are sitting as of the end of Friday:
The only reason I say the moving averages are mixed is because the 200 day moving average (dma) has held support so far, but the 10, 20, 50 and 100 dma are all bearish. After the DJIA failed to close above the 50 dma after touching it each day Monday through Thursday last week it rolled over and couldn’t even close above the 100 dma on Friday. While it only missed by 3 points, it did miss.
I drew multiple trend lines in this week’s chart. The three ascending lines have all broken and each one could be a line of resistance when the DJIA regains its footing. The two horizontal lines will be interesting to watch. The top one (around 10,250) acted as support a few times in November and December, then broke in January and February and during the flash crash, but finally was support again the day after on May 7th when normal trading seemed to be back in the markets. The fact that the 200 dma is just below this line makes it the absolute line to watch in my opinion. The lower horizontal line (more vague around 9,835-9870) marks the low for the day of the flash crash and the low for the year to day met in February. Even back in September 2009 this line came into play as it showed resistance on multiple days.
So, while this week’s chart isn’t as clear cut, we do find some good indications of where the DJIA could go next. After breaking trend lines and moving averages it seems the index is on a path back to test it’s intraday low from the prior week (maybe discounting the flash crash 15 minute low) which would bring it back to the 200 dma. I expect a lot more buying to surface if/when we get down there again for three main reasons. 1.) Buyers came back in there previously so we can expect more of the same probably. 2.) At the 200 dma the downside risk is much more limited than it was while the DJIA was trading 13-14% above it just a couple of weeks ago. 3.) After falling more than 10% the DJIA will officially have reached a ”correction” that many of us have been calling for over the past few months.
———————