Dow Jones Industrial Average Near Key Resistance Range

Based on the weekly DJIA chart we can see that the DJIA has formed a minor weekly topping tail right at previous key shelf resistance.  This should be an important clue that the market is ready for a reversal from this supply area.

I think it is still possible we could test the 52 week high in the DJIA but if we do then I would expect to see a sharp reversal again and preferably a next week closing that is near today’s range or lower.

In April of 2010 the DJIA hit the underside of the 2008 resistance band and it led to the May 6, 2010 flash crash.  It is unknown whether or not such a deep correction would occur again, but it seems clear to me that the greater risk is towards the long side right now as we are at this key supply resistance range.

djia20110107

The Nasdaq Composite weekly price chart is also telling a similar story to the above DJIA chart.

compx20110107

The Nasdaq Composite Index has also hit a very key resistance range and while it is possible we could see another 20 to 25 more upside Nasdaq points, I doubt we can build more ground higher than that next week.  I think we can easily see a correction in the Nasdaq to 2535 without harming too much the bull market up trend.  So 168 probably Nasdaq points down versus another possible 25 Nasdaq points up?  I will take that risk reward setup any day…

My take is that the markets will ‘find a reason’ to sell off next week.  Perhaps it will be a ‘sell the good earnings news’ situation again.  If we do not see it happen by end of next week, then certainly I would expect it to take hold the week thereafter. 

BestOnlineTrades advises extreme caution on the long side at this time.  The risk of downside price action greatly outweighs upside possibilities at this point in my opinion.

Posted in Index Trading, Long Term Charts, Market Timing
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5 comments on “Dow Jones Industrial Average Near Key Resistance Range
  1. Austin says:

    i have taken some insurance against a pull back. i have been sitting at 60% short for about two weeks now. I left 40% to the up side so you could say i didnt fight the tape but took caution. 🙂 hope everyone’s new year has started off well.

  2. Elliott Wave says:

    I don’t see it — too many stocks are coiled. Should be ANOTHER big up week (hard to believe, but that’s what individual stock charts are showing).

  3. steve says:

    One way to dealing with this baffling market is to look at relative strength of sectors. Consumer discretionary and non-disc are showing weakness.

    That factor worries me. It appears to me this market is driven by foreign earning and is discounting consumer action. Would that go on, don’t know.

  4. shrihas says:

    Thanks for the update.

    As I said before, I expect market to make another attempt at 1278 area. This is major resistance, if it faisl this time, S&P goes to 1230.

    I expect sideways market next week. Likely to be dull trading entire week.

  5. Tom says:

    Yes Steve,

    If you look at RTH retail holders ETF looks like a clear double top and a test of previous swing highs on much less volume. Starting to break down now.

    Shrihas I think you are correct. Will be interesting to see how much upside is left this week.

    I am most interested this week in seeing if the US Dollar can get another big rally going and how that might affect the stock market. I noticed from previous trading action that there can be a 4 to 5 day delay in the markets reaction to the first part of a dollar upward spike.

    Gold has already shown its reaction as a possible early warning sign.

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