I charted the past three months of daily prices for the Dow Jones ($DJIA) after the markets closed on March 19, 2010 when the index finished the week at 10,741.98.
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The big technical change in the Dow’s chart is that it broke above the previous intraday high for the year
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Article Content:
I charted the past three months of daily prices for the Dow Jones ($DJIA) after the markets closed on March 19, 2010 when the index finished the week at 10,741.98.
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The big technical change in the Dow’s chart is that it broke above the previous intraday high for the year and also set new closing highs. The two trend lines that have been running steady for the past month were coming close to converging when means only one can stay in place as the other must give way. I honestly thought the trend line of higher lows would break with resistance holding from the January high, but that’s not how it played out.
The trend line of higher highs broke first and on the same day the horizontal line marking the previous intraday high broke. A typical pattern is for the index (or stock/ETF) to test the previous line and then move higher. We saw that test on the following day, Thursday, but then Friday saw the Dow fall below both of the previous lines it broke/tested. That took the Dow back to its trend line of higher lows where it found support and rallied to let it close in line with both of the other to lines I referenced with the 10 day moving average close by for extra support.
This makes Monday an interesting day to watch and hard to predict. A break and close below this trend line of higher lows could be an indicator of more losses to come, but on the other hand, Friday’s dip could just be another test of the trend line before the index moves even higher. Seeing the 10 day moving average just below the lows of the day helps the bulls’ case. The 20 and 50 day moving averages are close enough to be only minor dips of no more than 4% at the most. That might be all that’s needed to bring some bears back to the side of buying. With Williams %R still holding steady in the overbought range it’s hard to call a time to exit yet, but watch Williams %R and don’t let the high volume on Friday escape you. The down day Friday was the highest volume day in more than three months, but it was also quadruple witching for options expiration which always adds more trading to the mix.
This chart still points to mainly bullish, not to mention we’re still holding above the 200 day moving average (not shown) by less than 10%. Staying above the 200 day moving average keeps some market timing advisors fully invested. Throw in the potential for Friday’s price action to be no more than an anomaly due to options expiration and the chart looks even better. I’ll be more comfortable with that statement by Monday afternoon or Thursday morning after I see how the week opens.
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