Charting Of The Dow Jones Industrial Average

It sure would be nice to have a continuation move one way or the other, instead of this constant big up, big down choppy environment we’re experiencing - these conditions can’t last forever so hold tight while we’re in them.  Let’s look at the daily Dow Jones (^DJI) and today’s intraday chart (complete with gap fade) for more insights.

Dow Jones Daily:

There is an amazing amount of alternating red and white bars (up and down days) such that where the most cynical (and actually, effective) trading strategy would be “if today is a down day, buy tomorrow at the open for it will be an up day” and vice versa.  But alas, that’s too easy but also goes against the grain of experience, in terms of wanting to see a move (swing) continue in one direction.

Nevertheless, we take what we are given and make do the best we can.  Officially, price is in a confirmed and primary downtrend and is currently experiencing resistance at moving average dual boundaries.  It would be extremely bullish should price clear 11,700 (actually 11,800) and extremely bearish should price break 10,800 (the July lows).  Until one of these two things happens, recent experience shows us that it’s not really a fruitful exercise to try and predict which of the two scenarios will occur first.  Don’t feel bad if you’re holding back in this environment and guarding your capital to deploy once a move emerges from this difficult consolidation (balance) area.

Let’s pull the camera out and look at the Dow’s performance from the start of 2008.

Dow Jones year to date:

I’ve thrown in a few momentum divergences for you to see, all of which resulted in the expected move as a price swing terminated and a new one began.  There’s a negative reading in the oscillator currently, and under the theorem “momentum precedes price,” that would increase the odds for lower prices, but nothing is guaranteed.

To make analysis worse, price is directly between the 11,800 and 10,800 levels that would trigger further action.  Pull the chart back to the weekly or even monthly chart to get a little better perspective of what might be ahead and be sure to adjust risk accordingly.

Let me combine two posts in one and briefly show today’s intraday price action, including a successful gap-fill in the market indexes.

DIA 5-minute chart:

The morning started with an opening gap, but don’t feel ashamed at all if you traded against the gap and sold out at a partial fill when price found resistance at the 50 period EMA - this was how I traded this morning and although testing does tend to favor holding for a full fill, a doji at resistance after an impulse move down is a fair place to exit longs and even consider putting on a short-sell position.

Ultimately, price did fill the gap and then trended down in the direction of the gap before reversing suddenly and unexpectedly at the 1:30 period before forming a momentum impulse up, breaking above the intraday high (and yesterday’s close) and surging higher on news that Lehman Brothers (LEH) may have a buyer.

Expect further upside in the Financials and broader markets if this indeed is the case and becomes the top story of today’s trading day.

Stay on top of your positions and keep a close eye on your strategy and money management.  Capital preservation - in my opinion - is the main objective until we get a clearer picture on the indexes.

Take time to research, study, and review your performance and perhaps learn new skills/set-ups until the picture becomes clearer.

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Comment by Adam

2008-09-12 10:35:35

Im guess DOW shd be breaking 11K support soon, these days we can see alot weakness but DOW was still very resilient, DOW SEPT Futures is rolling over to DEC which maybe i “guess” explained the stubbornness.

my cents worth.

adam

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