I charted the Dow Jones Industrial Average (aka $INDU or $DJI) after the markets closed when the index finished the week at 11,008.61.
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After eight straight weeks of moving higher the Dow Jones finally decided that was enough and took a break this week. A down day or week after
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I charted the Dow Jones Industrial Average (aka $INDU or $DJI) after the markets closed when the index finished the week at 11,008.61.
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After eight straight weeks of moving higher the Dow Jones finally decided that was enough and took a break this week. A down day or week after a long streak always begs the question if we’re due for more of the same in the coming weeks. The chart gives conflicting answers with a few key technical points to watch in the coming days which should help clarify if this is any more than a brief consolidation.
The first technical indicator that jumped out to me Friday afternoon was the moving averages. INDU traded below its 10 and 20 day moving averages each day from Tuesday on and closed below both on Friday as it did on Tuesday before recovering the next day. It could be that Tuesday was the first warning sign and Friday was the reminder. Monday could be a confirmation day below these moving averages which is what I like to see before I sell or if INDU rallies it will just add to the confusion. Either way, this is turning into a time to rethink some bullish positions.
One wrench in the bearish view is the horizontal line (A) I drew around 10,955-10,965. That’s been a strong area of support for the past couple of weeks after it was resistance the previous two weeks. The Dow has not broken below it yet and didn’t even trade as low on Friday as it did two days earlier on Wednesday. I drew another horizontal line (B) around 10,810-10,820. It shows another area of previous resistance and then support and has the added backing of the 50 day moving average right now. That’s only a couple of hundred points below Friday’s close or less than 2%. If the INDU finds support there the mini-corrections would only be 4%. That could be enough to bring the bulls back to the table.
Line C shows the high from January. It’s worth noting for now, but we’ll come back to it in the weeks ahead if it actually comes in play. Lines D and E show the rising wedge of a trading channel that started in January for the trend line of higher highs and the trend line of higher lows that started in the first half of February. A rising wedge tends to end with a break to the lower side and we can already see this one followed its typical path. How much lower from here it goes can vary, but the usual path is a bit lower than the Dow has already shown. This shows once again that Tuesday was a real warning day.
The Williams %R indicator says this is a time to sell. It fell below overbought for each of the past four days. That means we’ve had a few confirmation days to give it some validity. While not as clear cut as the indicator’s signal was in January, it bears (pun intended) watching. If Monday pushes it lower again I’d expect that we could be in store for another week of the Dow ending with a loss.
Volume is starting to pick up again and it’s worth noting the biggest volume days over the past couple of weeks have been on distribution (down) days. It shows there are a lot of traders sitting ready with their fingers on the sell buttons. A close below the psychological 11,000 level could bring out even more sellers. Be careful in the days ahead, this could move quickly.
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