I charted the past three months of daily prices for the Dow Jones Industrial Average ($DJIA, $INDU, $DJI, the Dow) after the index closed at 13,306.64 on Friday, September 7, 2012.
The 10 dma is still below the 20 dma which is bearish, but that will change within a day or two if stocks don’t fall much and the 10 dma moves higher quicker than the 20 dma. After such a strong run for stocks since the early June low, this reprieve could be a warning sign of more danger ahead. The first 10/20 dma crossover is sometimes a short lived bear trend, but the second one (if it comes within two weeks) can be brutal.The Dow looked like it was going to roll over and head further south as it melted lower for the past few weeks, but that changed on Thursday. The large cap industrial index found support at a new trend line of higher lows and shot back through its 10 and 20 day moving averages (dma). The 50 dma was close, but wasn’t touched before the rebound began. However, resistance came back into play around the 2012 intraday high. This is going to be the line to watch to see if the DJIA’s latest surge has legs.
Momentum has certainly shifted in the bulls’ favor, but be careful of getting overly aggressive here. Resistance at 13,330 and then 13,338 is going to be tough. Any failure at these levels could send the index back towards the lower end of its wide trading channel. A break above it might have a few hundred points in it, but probably not a lot more than that as the upper end of the trading channel blocks the path at the trend line of higher highs. Before getting above these resistance levels, there’s a good chance the Dow will come back to retest the 10 and 20 dma. That retest could be a launching pad for another 5% run higher.
The Williams %R indicator gave the same false sell signal that the moving averages did. The 14 day indicator fell all of the way into oversold to trigger a buy signal on the way out. The 28 and 56 day indicators faltered, but not deeply. Again, this is just a warning sign of what could come in the near-term, but is not a clear signal yet. The next move lower could find support at the past month’s intraday lows, around 12,977. This is also close to the 50 dma. A fall below that could be the start of another 350 points lower. A fall that low would be close to a 5% mini-correction and might be all that the bears have in them before the bulls take over again.