The Dow Jones Industrial Average, or DOW, as it is more commonly called, is the world’s most watched stock index. Consisting of thirty major companies, the Dow Jones Industrial Average is often considered a proxy for the entire United States economy. Analysts closely watch its every ebb and flow, trying to discern changes in the underlying financial system.
Technical Analysis (TA), which is the study of price and volume only, is a popular method used by traders and analysts to forecast future moves. The primary tenant of Technical Analysis is that all possible information about a financial instrument or stock market indices is already inherent in the price. Thus, by studying price patterns and/or volume levels, one can ascertain both the known and unknown fundamental factors affecting the price. In other words, price/volume is all one needs to know to make an educated guess as to where the instrument or stock market indices will go next. While Technical Analysis has its adherents and detractors, it certainly serves as an excellent way to visualize what has occurred in the market. I believe both critics and true believers will agree that if TA isn’t predictive, it is at least solidly descriptive.
With the above said, let’s take a closer look at the technical picture being painted by the Dow Jones Industrial Average (DJIA). Using a weekly chart, the DJIA has been solidly uptrending since hitting a low of 6469 in February 2009. However, since hitting a high of 11258 in April 2010, the Dow Jones Industrial Average has fallen sharply, hitting a low of 9614, as of the first several trading days in July. The weekly uptrend is still in full effect in this stock market index. Support appears at 9500, then again at 8000 on the weekly time frame. However, it is important to note that the uptrend has broken down on the daily chart. Both the 50 and 200 day Simple Moving Averages have been broken on the daily time frame. Trend-following technical analysts would say this is a very bearish sign.
As you know, one can’t trade the Dow Jones Industrial Average directly. Proxies such as the exchange traded fund ETF, DIA, can be used by traders to play their interpretations of the technical data.
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