Dow Jones Industrial Average Nears Key Resistance
Posted in Dow Jones Industrial Average (DJI) on December 29th, 2009 by admin – Be the first to commentBy Jim Donnelly, Olson Global Markets
It is the last week of the year and many trading books have been closed in order to avoid any negative surprises and to “lock in†gains. Nevertheless, the DJIA edged closer and closer to a test of the technically important trend line resistance level of 10,660. This level represents the “underside†of former trend line support drawn off the lows of December 1995, October 2002 and March 2003 which was decisively broken below in October 2008 following the failure of Lehman Brothers.
Since the depths of March 2009, an almost uninterrupted reversal higher has occurred, which has caused the DJIA to currently enter into an overbought condition on weekly charts. Normally, this type of set-up favors an initial rejection when trend line resistance is first tested. In addition, a consolidation phase of perhaps 38% to 50% often ensues.
Over the past decade, however, the equity markets have been fraught with excessive price activity, which is why the 10,660 level takes on additional importance. A solid rejection there would suggest that a typical correction phase may emerge. A solid break/close above it, however, would confound bears, as well as moderate bulls, which could result in a fresh round of investor demand.