Friday, January 25, 2008

$INDU - Dow Jones Industrial Average


$INDU, the Dow Jones Industrial Average lost almost two thousand (2000) points from ~13,700 to ~11,700 during the past six weeks. Needless to say that is a very hefty decline. As you can see, the BLUE TREND-LINE RESISTANCE kept a lid on prices as they slowly and steadily declined. However, this down move was punctuated by heavy losses on high volume. Once a selling climax occurred the down move was exhausted we got a rather clear "W" BOTTOM complete with a retest of the 11,650 level. That move was highlighted by a serious reversal wherein prices were down 300 points during the day and then reversed to finish up 300.

As BLUE TREND-LINE RESISTANCE is surmounted we got a pullback to the SINGER EMA BAND this Friday. At this point we could get a retest of the lows, however, a move toward 12,600 is the more likely scenario with the likelihood of testing DASHED MID-LINE RESISTANCE and then previous SUPPORT levels now turned RESISTANCE. Merely a COUNTERTREND RALLY.


$INDU got itself going in 2005 as it rode GREEN TREND-LINE SUPPORT before breaking out in 2006. The Index attempted to breakout over the 11,670 level which was the 2000 high but was rebuffed only to find good support at the GREEN TRENDLINE. Subsequently $INDU made another run at that level and eclipsed it breaking out to new nominal highs and began it run to the mid 14000's.

After running up the high 12,000's the market took a quick tumble in March 2007 down to 12,050 but found excellent support and then catapulted to the 14,000's over the next number of months $INDU traced out a classic HEAD AND SHOULDER pattern which turned out to be a TOP. After failing to breakout over it all time highs, the "deteriorating credit cycle and negative out look for the consumer combined with an ever negative real estate environment gave impetus to further selling. This led to a breakdown below the NECKLINE of the HEAD AND SHOULDERS PATTERN around 12,750. The market then collapsed further with KEY TECHNICAL LEVELS having been breached.

However, after falling to 11,650, which was a SUPPORT level, the market became unusually oversold, and therefore further downside became unlikely near term. The end of that down move was highlighted by a serious one day reversal, wherein prices were down 300 points during the day and then reversed to finish up 300 by the close. It was a huge move although its importance laid in its marking a NEAR TERM LOW, similar to the ones seen in March and August 2007, where the $INDU was down severely and then recovered leaving a HAMMER BOTTOM candlestick in place. Interestingly, the BOTTOM SHADOW of the CANDLESTICK which represents the depths to which prices fell at their lowest that day coincided with the original GREEN TREND-LINE SUPPORT which was traced out in 2005/6. On this WEEKLY chart it looks probable that prices would snap back and rendezvous with the now declining SINGER EMA BAND around the low 13,000's or high 12,000's give or take...


Here, the $INDU is seen having gone through a massive UPTREND delineated by the GREEN SUPPORT TREND-LINE running from the lows in the mid 1990's below 4,000 to the highs recorded in August 2007 over 14,000. The two key features of this chart are the aforementioned "green support trendline", and the symmetrical band, which is placed horizontally across the chart and as it turns out delineates key SUPPORT and RESISTANCE levels. This "Symmetrical Band" consists of two horizontal lines spanning the breadth of the chart and a "Dashed Mid-Line" which is a naked eye approximation of the midway point between theses two horizontal lines.

$INDU ran up huge into the 'Symmetrical Band' by 1997, and after several months held support at the lower band. Thereafter, it climbed steadily but was rebuffed at the dashed mid-line which at that point was overhead resistance. The Index then shot down but held support once again at the lower band. That was the crisis of 1998 and afterward we got a magical move higher above the dashed mid-line. Over the next few years the top band formed resistance for the Index as it moved to all time highs but was clearly having trouble moving higher. looking back now it is easy to see that this was a major period of distribution.

After the 2001 crash, etc., the $INDU found wonderful simultaneous SUPPORT at both the rising GREEN SUPPORT TREND-LINE and the LOWER BAND of the "Symmetrical band" that we have been speaking of. This area played host to the formation of a "W" Bottom which along with super low interest rates catapulted the Index to a new rally which eventually pierced the UPPER BAND which then became SUPPORT.

During the recent selloff in the Markets it is this UPPER BAND that is now acting as firm support around 11,700.


This 25 year or so chart of the $INDU kind of speaks for itself. Essentially, what it says is that the move has already been made from under 1,000 in the early 1980's to over 14,000 recently. That being said, GREEN TREND-LINE SUPPORT is still holding so theoretically this market is still in a LONG TERM UPTREND. However, if this massive UPTREND does eventually come to an end, the fall attending the end of that trend could easily bring us back to the 7,000 level. However, I don't know if thats possible given the amount of liquidity out their and the virulent fiat money creation.


If this is indeed the "bend in the end" of the above-mentioned huge uptrend in the $INDU, I have laid out a Fibonacci study of the retracement levels we are likely to see... Not pretty!!!!

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