6 Month DJIA Chart – November 13, 2009

I charted the daily price action of the past six months for the Dow Jones Industrial Average (DJIA or ticker: $DJI) after the markets closed on Friday the 13th, 2009 when it closed at 10,270.47.

I have a hard time thinking that this would be a good time to open a new bullish position based on how the DJIA Chart looks.  I circled the six times the index has hit its upper trend line of higher highs.  After each touch of this line it moved lower soon after.  That’s not to say it’s going to happen on Monday necessarily.  You can see the past three times it got up here the DJIA worked the line for a week before giving up and heading lower.  My point is that if this line continues to act as resistance, the upside potential from here is limited.

What’s starting to get interesting is the point difference between the two trend lines is getting bigger.  The trend line of higher lows is running at a smaller angle than the upper trend line of higher highs.  The slope of the lower one is probably more realistic over a longer period of time, but we’re in the final two months of the year and a lot of money is chasing results before the end of the year.  That could mean we don’t get a dip all of the way to the lower line until the new year and then I wouldn’t be shocked to a little bit more of a reversion to the mean.

The mean isn’t the lower trend line, but that’s probably the point we could over shoot to.  The mean comes from moving averages.  the 50 day moving average is right at the 10,000 mark now, less than 3% below the Dow’s current level.  That would be an easy dip and should bring more buyers into the market.  That’s especially true due to the end of the year chase and the fact that all of the recent dips have stopped at 5-6%.  I’d think a lot of money managers are aware of that and will start to position themselves a little earlier this time around so they don’t miss the bump back up. 

On the bullish side – Thursday saw a bullish crossover of the 10 day moving average over the 50 day moving average.  Williams %R hasn’t fallen below overbought yet.  It can stay in that range for a while, so according to these technical indicators good times are still on their way.  If only volume could support that argument I’d be more incline to jump in, but it doesn’t.  Volume has been weak during this little rally with the only days that have gotten above the average being down (distribution) days.

Options expire this coming Friday giving this week an extra volatile tinge to it.  Be careful not to get tricked into any overly ambitious moves based on one or two days of price movement.  It could just be some of the big boys reshuffling their portfolios.