Dow Jones Chart ($INDU), October 19, 2007

I thought last week was fun, you?  In my DJIA charting post last week I said I thought the Dow was ready for a pull back to the 10 and 20 week moving averages.  Not that this blog is about self praise (or is it?), but did you notice the ending point on this week’s chart?  The $INDU closed on those moving averages.  See the top circle in the chart I drew this week.

The weak optimism shown by the less than average volume over most of the past seven weeks finally got shaken up with some strong pessimism.  We’ve been on such a rocket trip that this decline was overdue and anyone doubting it and prone to panic jumped on the selling bandwagon.  Of course, I took this opportunity to sell more naked puts with fear climbing among the emotional investors. 

The low volume I mentioned above shows a lot of money is sitting on the sidelines ready to buy when the conditions are more favorable.  That makes us wonder, when will the conditions be more favorable?  Last week’s shake down was the first step in getting us there and it reminds investors not to be so anxious to assume the markets are risk free.  It reminds me of when I played soccer and didn’t really feel the game was underway until I felt the sting of the ball the first time of the day from stopping someone’s pass or shot on goal.  We got that sting on Friday, so game on!  It kind of shakes the cob webs out of your head, doesn’t it? If you are not reading this post on www.mytradersjournal.com you are reading it from a site that has plagiarized it.  Please visit my site for original content and stop visiting this thief’s site.

We hit the first key speed bump, the 10 and 20 week moving averages and now we have to check to see where the next shot might come from.  I only drew three moving averages this week.  All are below the current DJIA price.  The most likely next stopping point could be in the second circle I drew.  It includes both the 50 week moving average and the floor used for a little while a few months ago.  I wouldn’t be surprised to see an intraday dip all the way down there before we found some more solid footing.  A move this low, another 500 points, still keeps us in what I see as the continuing bull market, up from the lows of March and August.