DJIA ($INDU) Chart – 10-5-07

I charted the past three months of daily price action on the Dow Jones Industrial Average ($INDU) this week. In some ways I was surprised that the Dow made it above 14,000 and closed above it for the week.  On the other hand I’ve made a bunch of bullish trades recently so I guess I was expecting it, but certainly not this quickly.

I labeled the five lines I see as possibly telling us something. 

- Line A is the previous intraday top, just over 14,000 which is now just below the current closing price.

- Line B is the rising line of higher highs.  We haven’t crossed this line yet.

- Line C is parallel to line B and has acted as the rising trend line of higher lows, althouth it went through a spell below that line for a while, so line C doesn’t hold as much credibility.

- Line D came about as only having the possibility of being short lived as steep as it was.  Line D was the new rising trend line of higher lows, but we finally broke through it this week and then it acted as a ceiling on the first day if broke and again on Friday when line C showed its power of support.

- Line E doesn’t have a long history, yet.  I drew it because I could see a pull back of a few hundred points to bring it back to the line that was a ceiling for one day followed by a floor for five of the following six days.

Click on the thumbnail below for a full view of the chart in another window:

Overall, I don’t see a clear path to much higher short-term gains.  On the other hand, the masses don’t seem likely to allow another hard fall soon either.  Check out the volume circled in the bottom right.  For the past two weeks the average volume on the Dow has been less than average showing that a lot of money is on the sidelines waiting for a pull back.  When (not if) we get the next pull back, I believe we’ll see more strong support to keep it fairly short lived.  I don’t want to see such a fast recovery next time.  As a writer of naked puts I prefer the slower recoveries.  A good pull back would help get volatility back up again.  The VIX is under 17 again which means I’m not getting as much for each option I sell.  The good news is I’ve already sold a lot of naked puts and am in no hurry to sell more if the opportunity for a good gain doesn’t appear.

If you are not reading this post on www.mytradersjournal.com you are reading it from a site that has plagiarized it.  I’ve had to add this notice to the end of every post with the growing number of scum out there who steal posts and don’t credit the authors.

Technorati Tags: investing, stocks, trade, stock chart, $INDU, trend lines, finance