Continuing my weekly series of charting a major index, I returned to chart the Dow Jones Industrial Average ($INDU) at the bottom of this post. I charted the past six months of daily price action. Here’s what I notice from the daily six month chart this time:
- The DJIA is below 10, 20 and 50 day moving averages. That’s not good.
- The DJIA closed Thursday below the 100 day moving average. That’s not good.
- The DJIA opened on Friday below that line and fell deeper before recovering. I actually like that. The index fell to hit the trend line of lower lows I drew only to recover soon after and even finish above the 100 day moving average. Having two or three days below the 100 day would (or will be) bad. For now, I consider that a positive sign that we recovered to end the week.
- The 200 day moving average is around 13,200 and offers a stronger line of support. That gives a big speed bump to get over that is only ~300 points below where we are now. It also coincides with line D which has been the point of support a few times since the end of July.
- Breaking through the 200 day moving average will only bring the DJIA closer to the previous line of fairly strong support, just above 1300 shown with line A. (EDIT on 11/10/07, this is almost where the Dow closed yesterday, one week later) While it’s possible we’ll retest the mid-August intraday low, I think the 13,000 level is the line to watch and consider turning full bull again.
- Lines B and C show the trading channel that is starting to trend down with lower highs and lower lows. I won’t turn fully bullish until we break line C again and won’t turn fully bearish until we spend more than one or two days below line B. If you are not reading this article on www.mytradersjournal.com you are reading it from a site that has plagiarized it.
Next week could offer another up week as the DJIA moves back to the top range of this trading channel. We’ve had two down weeks in the past eight which shows we have shaken out some froth again. Also, the put/call ratio is at 1.10 for the S&P500 which is showing a more bullish sign from a contrarian point of view. More traders are buying protective puts to hedge their long plays. For the week to play out correctly (up) we must stay above the 100 day moving average and also pull back above the 50 day. If that happens, I’ll be loading up again. (EDIT on 11/10/07, neither of these last two moves worked which aided in the collapse Wed through Thurs this week.)
Check out the weekly Dow Jones Industrial chart for November 9, 2007 too.