Dow Jones Industrial Average Aimed At Key Resistance Zone
Posted in Dow Jones Industrial Average (DJI) on March 27th, 2011 by admin – Be the first to commentBy Jim Donnelly, Olson Global Markets
With overbought conditions present on long-term charts, the Dow Jones Industrial Average appears to be aimed for a test of two key “cross” trend lines that combined represent important resistance at the 12,800 level. If a test of this level were to occur, it would represent a 97.8% gain from the March 6, 2009 low of 6,470.
The real question is whether the 12,800 area will halt the upward move of the DJIA that has thus far shaken off a host of worrisome news that include: wide spread turbulence in the Middle East; a major jolt to Japan’s economy; a steady rise in commodity prices; a residential real estate market that has yet to stop sliding lower in both sales and price; and the expectation that state and municipal balanced budget efforts could result in job loses that, in turn, could offset a nascent recovery in the employment data.
From a technical point-of-view, equity prices appear to be stretched without experiencing a serious correction since last August. While that might be true, quarter-end “window dressing” may be contributing to a shift away from U.S. treasury notes and bonds and into stocks, particularly with the Fed maintaining a zero interest rate policy. A slide lower in the U.S dollar index, in theory, should favor the export picture. But, the importation of higher costing oil, while helping the price of stocks in the energy sector, could at some point cross the “tipping point” that forces U.S. consumers to close their pocketbooks until the job picture and wages begin to show solid gains.
There is no doubt that if a trend in job gains were to begin, the overall economy would shake off inflation expectations and the slumping housing market. As a result, March’s employment report due out at the end of the week should be the focus of investors near-term. Keeping an eye on the 12,800 area on the DJIA, however, should be the focus of investors over the intermediate-term.