Dow Jones Chart – October 2, 2009

I charted the Dow Jones Industrial Average (aka: DJIA, ticker: $DJI) after the markets closed on Friday, October 2, 2009 when it was at 9,487.67.

This chart has a lot going on this week; trend lines, moving averages and the Williams %R indicator all want their say.  I’ll run through them all, starting from the top and going down the chart.  The trend lines remind us that the upper line, the trend line of higher highs which has acted as resistance for a while is still resisting.  The lower trend line that marks the higher lows hasn’t been tested since July when it became the new point of reference since the March low. I expect this line to come into play pretty strong.  The middle trend line had the most play as it help support all of the past six months outside of the late June, early July dip.  It just broke.  Notice the last time it broke the DJIA fell for a couple of weeks more.  That could line up with the lower line if the decline is slow enough.

That takes us into the moving averages.  I used the 20, 50 and 100 day simple moving averages for this chart to give a wider range of time frames.  The 20 day moving average (dma) hasn’t been ideal support, but has been close.  It’s starting to lose that grip.  The 50 dma hasn’t had a chance to come into play much, but is always worth watching.  The 20 dma broke intraday on Wednesday and then the DJIA recovered to close above it.  Then it cracked hard on Thursday.  The 50 dma broke intraday on Friday and then the DJIA recovered to close above it.  That begs the question if the 50 dma will crack fully on Monday.  I left the 200 dma off this chart since it’s down closer to 8,500 and the 100 dma is almost dead on 9,000 and will come into play first.  The 100 dma has a strong possibility of adding to support of the trend line of higher lows I mentioned above.  The last time the DJIA dipped the 100 dma was the line to offer support.  That support could be less than 500 points away.  As no so random coincidence, a drop of that magnitude would give the DJIA a nearly 10% correction from its intraday high on September 23rd.

I removed the volume part of the chart to make more room for three different time periods of the Williams %R indicator.  Typically when the 14 and 28 day periods break below overbought at the same time for at least three days in a row it’s a bearish sign.  When you see the 56 day period break at the same time you can feel the bear breathing down your neck.  That’s starting to happen, but I’d like another day or two confirmation to feel like the bear has entered the cabin completely.  I keep going back to the mid-June crack in this rally and once again if you look at that same period you can see how the Williams %R indicator forecasted the fall, just as the turn higher, out of oversold, signaled a time to buy.

Stay tuned, this week is going to be huge!  On top of a chart that’s begging to go lower, earnings season starts on Wednesday with Alcoa (AA) kicking off the big names’ announcements.  Try not to panic if Monday heads lower.  Support just above 9,000 is going to be a big space to watch.