Dow Jones Chart – October 23, 2009

I charted the Dow Jones Industrial Average (aka DJIA or $DJI) after the markets closed on Friday October 23, 2009 when the Dow finished the week at 9,972.18.

The DJIA was due for a little pull back from its highs after it touched its upper trend line of higher highs on Monday.  The result was that we got another down week after the previous two up weeks.  I see a couple of different trend lines of higher lows to use.  The lower one starts at the March lows and uses the July low as a point of reference.  The other line ignores the July low and (aside from that single pesky month) seems to be more a better indicator of the current trend.  The lower trend line is currently around the mid-9,200s.  Hitting the second trend line soon would move the DJIA close to the mid 9,600 range.  Eventually a technician might figure the index would come down to touch one or both of these trend lines.  The question is how long it takes to get there.  That’s an important question to consider.  If it takes a while, the DJIA could just trade sideways in a consolidation period while the trend lines catch up.  If it’s going to be done quickly, the DJIA would have to drop roughly 4.5% to 8.5% from its intraday high of the year.  Based on the run we’ve already had, I think a dip like that could be very healthy for the markets overall.

I left the 20, 50 and 200 day moving averages (dma) on the chart to show a wide range of potential.  The 20 dma has shown decent support recently, although it can break without too much follow through.  It’s still holding for now.  The 50 dma doesn’t break as easily.  It held during the October low by each day’s closing price although it did “bend” intraday.  The last time it broke was in July and then the DJIA stayed below it for the following few weeks as it fell further before regrouping and going on a big run.  The 200 dma is always worth watching.  The farther the index moves from the 200 dma, the harder it is to expect much bigger moves higher.  As has been proven this month, being 150 points away doesn’t mean the index can’t move higher, but rapid increases shouldn’t be expected.  The 200 dma has started to inch higher as the lower prices from 201 trading days ago are replaced by the higher prices of today.  That gives some hope that any reversion to the mean doesn’t take the DJIA below 9,000 on a good correction.