Dow Jones Industrial Average Technical Update: May 8

Technical Overview

  • Last Thursday (May 3), the index found support at the 23,500 level and moved higher to close above its 200 SMA (white line in Figure 1). The intraday low came only 150 points away from the Feb 9 and April 2 lows (green arrows). Price action on this day can be viewed either as a successful retest of the tentative double bottom or simply as the index finding support at the 23,500 level (a level, which proved to be significant on two occasions during the mid-March correction – bright blue horizontal line and arrows). Whichever way you look at it, price action around the confluence of supports was deemed constructive.
  • On Friday, the index opened slightly lower, retested the 200 SMA yet again and moved sharply higher by EOD (primarily fueled by Apple making a new high). This was the third time that the moving average served as support in 2018.
  • On Monday, bullish momentum took the index higher, retesting three key levels:
    • The 24,500 level, which served as resistance on several occasions since the mid-March correction ensued (yellow horizontal line in Figure 1).
    • The January-April resistance (orange trendline in Figure 1).
    • The neckline of a 2-month inverse H&S pattern (bottoms – white ellipses; neckline – bright blue downward-sloping trendline in Figure 2).
  • Yesterday, the index closed below all three resistances as it experienced a late-day pullback.
  • Today, the index retested the January-April resistance again, closing just below it.

Figure 1. DJIA Daily Chart

Figure 2. DJIA Daily Chart

Implications

  • A break above the neckline will activate an upward,1,300-point projection from the point of the breakout.
  • The longer the index remains below the above-mentioned resistance levels and above its upward-sloping 200 SMA, the swifter and more powerful the eventual breakout is expected to be.

Outlook

  • Neutral while the index is above its 200 SMA (currently at 23,792) and below 24,500 (the highest level of the 3 resistance levels outlined above).
  • Short-term bearish below the 200 SMA but above 23,350 (the Feb 9 and April 2 lows).
  • Long-term bearish if the index breaks 23,350.
  • Short-term bullish if the index closes above 24,500.
  • Long-term bullish if the index breaks 24,500 and finds support at the January-April resistance (or the neckline) during its next retracement.

Featured image courtesy of Shutterstock.

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