I plan to continue my weekly index charts throughout 2008 since I have received some good feedback during 2007 and I chart them for my own benefit anyway. I’m starting with a weekly chart of the Dow Jones Industrials Average (DJIA or ticker $INDU) going back to May 2007. I have to point out that the fundamentals overshadowing the markets took more control of the DJIA than the technicals could handle. This past week is a good example of why I don’t rely 100% on either methodology, but like to mix a little from each school of thought to determine my outlook.
I was hoping the short uptrend starting in late November would hold and if that broke that the previous line of demarcation around 13,000 would be a good buffer, but the jobs numbers ruined that plan. Mayb the downtrend of lower highs started in early December had something to do with that top hitting just where it did too. (I highlighted it with the blue square.) The DJIA broke through both of those lines and came all of the way down to the much less steep line that started back in May 2007. Last week was the fourth time we’ve hit that line and found support. Eventually it could give way and that could be sooner than later. The line I’m really interested in seeing hold is the 100 week moving average. I drew the maroon circle around it, not far below 12,500.
I’m still holding on to the belief that we are in a healthy correction. I see so much negativity built into the markets so far that I hope it means the selling shouldn’t be too vigorous for too long. You can see at the bottom of the chart that last week’s volume didn’t pass the average volume for the DJIA. Admittedly the week was broken up with a holiday, but with such scary news one would think the volume would have caught up anyway. On the other hand, just because there might not be as many sellers out there as the bears would like, I’m afraid there are not many buyers out there yet either. That’s part of why I think that 100 week moving average could be the point buyers wake up and take advantage to these new lows we’re seeing.
I’m sitting half on the sidelines a little longer and with my new job starting in a week, on January 14th, I might not have time to focus on investments as much for a few months. It’s quite possible that I’m lucking into the right time to stay back a little. The VIX and VXN are far from there highs, closing at 23.94 and 28.62 respectfully on Friday. That tells me that fear isn’t quite high enough yet to call a near term bottom.