Dow Jones Industrials Chart – August 28, 2009

I charted the Dow Jones Industrial Average ($DJI) after the markets closed on Friday August 28, 2009 when the DJIA closed at 9,544.20.

After eight straight days of gains for the DJIA it finally gave up the fight for a day and closed lower on Friday.  Based on the trend line of higher highs it’s been hitting for the past few months, lower or sideways were the only directions left for the index to move after it hit a new high for the year Friday morning. I’m expecting that same trend line of higher highs to remain as tough resistance and think we’re due for at least a minor correction. 

A full 10% correction from the Friday’s intraday highs of 9,630.20 would move the DJIA down to 8,667.  That would sync up fairly closely with the lower trend line I drew of higher lows if it happens in the next couple of weeks.  A 5% correction from those same Friday highs would move the DJIA down to 9,148.  That is almost in line with the long horizontal line I drew which marks the high in January and the lows of two weeks ago.  To add some strength to this potential area of support, the 50 day moving average is moving higher and could march up there by the time the Dow sinks that much.

Then again, there’s always the 200 day moving average down in the 8,300+ range.  A move down there would be a much safer place to get back in based on being the theory that a reversion to the mean tends to repeat, but the way the markets have been behaving recently I don’t know if it’ll make it that low before finding footing and if you stay on the sidelines too long you’ll miss a lot more potential gains.  My approach will be to open a small position if we get a 5% pull back and then add to it at the 10% level.  After that I’ll wait until the 200 day moving average comes back into play or I find a new trend line I like.

Other technical indicators worth noting – Williams %R is still in overbought where it can continue to show strength for who know how long.  The 28 day period hasn’t broken below overbought for the past month and a half, which is rare.  Keep an eye on it.  We might be getting set for a big move down.  Also, volume has been subpar recently, but the summer is ending soon mentally as Labor Day approaches and the big guns return to play – or so the rumor goes.