Dow Industrials Chart ($INDU) 8-17-07

While looking at my blog’s incoming links on Friday I noticed that an article from The Wall Street Journal’s online edition linked back to my write-up on the VIX. I thought that was really cool and worth sharing.

Anyway, I was excited to chart the daily Dow ($INDU) chart ending on Friday, August 17th, after such an volatile week last week. I wasn’t let down. The chart shows an incredible line of higher lows that started a year ago in August, was touched again in March of this year and then hit again on Thursday (circle B). The difference this time around is the Dow’s visit near the line was very brief. One has to think that such a fall needs to be retested before we can really consider it a strong bottoming out.

The stongest headwind could come from the very short downward trending line (line A) that started about a month ago. Right now, that line is around 13,500 and has a sharp slope down. We could carry right on through it and head back to one of the other longer term trend lines pointing up, but I would prefer to test the lower line for support first. Jumping back up too soon to the top lines wouldn’t allow investors the time to let all of the news truly sink in and could give too many a false sense of hope that buying on a dip always works. It’s hard to imagine that one small cut in interest rates for banks will make the entire economy wake up and renew its growth run. At some point there has to be a more solid reverting to the mean. We might not see it in the next few weeks, but it will happen one day. It always does. That’s why it’s the mean.

Click on the thumbnail below for a full sized chart: