Dow Jones ($DJI) Chart – Back to Resistance

I charted the Dow Jones Industrial Average (DJIA) for the year to date ending Friday, September 11, 2009, with the DJIA at 9,605.41.

As with the S&P 500 chart I posted last week, the Dow Jones chart showed an index that was starting the week in the middle of its trading channel and could move evenly in either direction without hitting resistance or support.  The DJIA opted for moving higher and met up with resistance on Thursday before closing near its highs of the day, setting a new high close for the year.  That set the stage for a flat to higher open on Friday which played out like most would have expected for the first couple of hours of the day and then the five day winning streak dried up leaving the Dow down 22.07 for the day, but up for the week by more than 150 points.

Now that the DJIA has moved up from that mid-point where it started the week, it’s now bumping up against resistance.  I’ve actually drawn two lines that are fairly close to each other now.  The longest line starts with the high of January and uses the highs of August and this week as resistance.  The next longest line is the trend line of higher highs that has come into play frequently over the past seven months.  It has more room to run if the first line doesn’t win out.  Admittedly, that first line might even be a stretch, but it’s holding true for now so I thought it was worth including.

The other two trend lines show areas of support based on higher lows.  The one starting at the end of March broke in June, but then returned to the same trend two months later.  The DJIA bounced off that line at the beginning of September giving it some more credibility.  That’s a big line to watch.  If it breaks I expect to see the Dow Jones come back to meet the longer trend line of higher lows that’s coming close to the 9,000 mark now.

This week saw the Dow Jones move a little farther away from its 200 day moving average while the 50 day moving average kept pace at approximately the same rate of incline.  At some point there will be a reversion to the mean, even if it is just with the DJIA moving sideways while the longer term moving averages play catch up.  Worth checking out is the decrease in volume over the past six months.  We saw about half the average volume this week compared to six months ago.  Just keep that in mind when you consider the length and distance this rally has covered.

This coming week includes options expiration on Friday which can add some interesting volatility sometimes.  Based on the chart I don’t see the DJIA moving much higher in the near term.  The most likely scenario is a tight trading range, but keep an eye on that 200 day moving average over 1,000 points away and the rising trend line of higher lows 600 points away.  If we get a correction that takes us anywhere near that lower level, expect some major support buying to come off the sidelines.  That could be the type of pull back that will get a lot of investors off the sideline who are sorry they missed so much of this rally (yours truly included).