Dow Jones Chart – Conflicting Technical Indicators

I charted the Dow Jones Industrial Average (DJIA, $DJI) after the markets closed on Friday, December 15, 2010 when it closed for the week at 10,609.65. 

In my last DJIA chart I posted two weeks ago I wrote that I could see a little upside and more downside coming our way and a lot depended on the first week of the year.  Although I’m not using the same trend lines in the chart below, you can still see that the first week foreshadowed a strong second week (not counting Friday).  The horizontal line around Dow 10,515 started to break higher at the end of December, came back tested, broke and then broke out.  That line acted as support the first week of the year and again on Friday.  That should lead us to believe it’ll hold again and this rally should continue, but not all indicators agree.  Although the DJIA is still in its short trading channel moving higher, it fell below its 10 day moving average on Friday and closed below it for the first time in two weeks.  If it doesn’t recover on Monday that could spell a deeper correction is on the way.  The last time below the 10 day moving average lasted only one day.  The time before then the dip only lasted two days.

A single down (aka distribution) day like Friday gives the upper trend line of higher highs a little more room to inch higher for the Dow to creep back up to it and the opportunity to show how strong this lower trend line of higher lows can be.  Another down day on Monday will break below this trend line and will also push the DJIA below its 20 day moving average (which is hidden by my lines).  Both of those technical breaks could push the index down to its 50 day moving average, if not down to the longer term trend line of higher lows that’s almost up to 10,300 currently.

Williams %R has given us some head fakes recently, but it’s still worth noting that the 14 day indicator broke below overbought.  That’s bearish.  The 28 day period hasn’t given in yet which remains neutral.  If Monday and Tuesday are down days, Williams %R is just one more indicator that could add to the reasons to expect further declines.  If the trend line holds, we’ll continue the path to the higher range I estimated the Dow to have a chance for, another 400 points above Friday’s close.  Last, but not least, don’t miss the volume from Friday.  It was the heaviest volume day for a down day on the index for more than four months.  More foreshadowing?