I charted the daily prices for the past six months on the Dow Jones Industrial Average ($DJIA, $INDU, $DJI, the Dow) after the index closed for the week at 15,115.57 on Friday, May 31, 2013.

Traders have been begging for a simple 5% correction for months, but the Dow Jones Industrial Average has continued to push higher without doing much more than blinking on a few days.  The Dow didn’t close below its 20-day moving average (dma) during May, until the final day.  Much of Friday’s declines (almost 150 points) came in the final 30 minutes of the day.  That could be worth considering before going into full selling-mode on Monday morning.  Either way, the Dow is below its 20-dma and that’s important.

The DJIA deserved some attention once it fell below its 10-dma.  This gave the 10 and 20-dma time to draw closer together.  With the DJIA closing below its 20-dma, these to moving averages will be on a path to converging sooner.  Regular readers of My Trader’s Journal know the importance I give to the 10/20 moving average crossovers.  These events foreshadow bigger momentum shifts in the longer term.  At the same time, drawing closer and avoiding such an event can trigger another pop higher for the index.  See the end of April for an example of this.

The Dow could be down another few percent by the time the 10 and 20-dma crossover.  That leads us to other indicators for a quicker decision.  The next big hurdle is only about 100 points away.  The trend line of higher lows is around 15,000.  Just below that, the 50-dma is ascending for an extra level of potential support.  Coupling these could add solid support before the DJIA could fall more than 3.5%.  That’s been all the reset the index has been able to muster all year and it might not push for more quite yet.  If it does, the next 500 points could be much quicker as the index drops to 14,500, the next area of potential support.

The Williams %R indicator is starting to agree with this scenario of a dip that goes beyond 3.5% from the recent intraday highs.  The 14-day indicator started raising a red flag more than a week ago.  The 28 and 56-day indicators joined the chorus on Friday.  One day below the overbought area is not enough of a reason to sell, but it is a call to be ready to exit any unhedged positions.  The April dip showed how the lack of follow-through is another reset for the bulls.  As the same setup presents itself again, be ready for a different outcome if the current pattern doesn’t maintain its trajectory.

One of the strangest (and maybe least reliable) points to watch is the Tuesday phenomenon.  The Dow Jones hasn’t closed for a negative Tuesday all year.  That’s 20 consecutive Tuesdays that have favored the bulls.  Continued weakness in the large cap index for two more days would break that trend and could come on a day that pushes the DJIA below the support areas I focused on above.  The Tuesday shift could be the straw that breaks the camel’s back as the record setting Tuesday run ends.  If this coming Tuesday finds support again, we could see the Dow push higher again, possibly above 15,500 to its trend line of higher highs.

DJIA-Chart_2013-05-31