Chart of the Week - Dow Jones Industrial Average

DJIA Daily Chart - Trending Down Strongly but Trying to Hold Above Support at 9378

Short-term Traders/Tsupiteros:	Medium-term/Position Traders:
Support - 9378	Support - 6400 / 8200
Resistance - 9700	Resistance - 10000
Trend - Sideways to Down	Trend - Up
Recommendation - Trade the range	Recommendation - Take profits

The last time I featured the Dow Jones Industrial Average (DJIA) as my chart of the week was March 9, 2009. During that time, I was already looking for a bottom in that market. This time, it is quite the opposite. I believe this market is now peaking. Let me explain below why.

For the last couple of months, I have already become wary of the DJIA as prices are now approaching its long-term moving average. Notice the direction of the moving average, it is pointing downwards. This means that the trend of the DJIA in the long-term (monthly chart) is still down. Because of the huge ascent that this market had had in the last seven months, some people are already concluding that this market is already in a "bull market". The moving average is telling us otherwise. In my opinion, the market simply dropped too much during its last descent last year and early this year. For the last few months, prices merely went back up to its mean but is still trending down. Take note, prices are currently in between the 38.2 and 50% Fibonacci Retracement levels, which indicates that this may be nothing more than a correction within the overall downtrend of the DJIA. If so, could it mean that we will see the Dow drop back down towards its previous low at 6400 in the next few months thereafter? Looking at the chart, that certainly is not impossible. I'm still giving this market the benefit of the doubt as long as prices stay above the 9200 level though. A break below the 9200 level would confirm that this market has peaked at 9900. The next big support after 9200 would be near 8000 already.

Whereas we have yet to confirm a peak in the monthly chart, the weekly chart is telling a different story. The weekly chart of the DJIA above indicates that the market has already peaked at 9900 and is now correcting back down. However, since the trend of this market in this time-frame is still up, some people are probably assuming that this is nothing more than a correction within the overall uptrend of this market. The support in this time-frame is also the 9200 level. I would presume that that level would be tested in the next couple of weeks. However, given that this market is looking for a peak in the monthly chart, a peak in the weekly chart is now a red flag and could result in a bigger decline if the smaller time-frames start to turn.

Let's now look at the short-term picture of the DJIA by looking at its daily chart. The market has had quite a fall last week. From a peak of exactly 9917, prices dropped all the way down to 9378 last Friday. Notice the breakdown of prices below its blue lower trendline. This breakdown indicates that this market is no longer trending up but is simply moving sideways right now. At current levels, the market is now oversold and could possibly rally. However, I would not be surprised if prices form a lower high relative to its peak at 9917. The 9600 to 9700 levels should prove to be a huge stumbling block in this market in the short-term. Given its huge fall in the last four days, I just can't see this market heading back up near 9900 anytime soon. The best that this market can do is rally back up to 9700 and consolidate between 9378 and 9700. What's the worst thing that this market would do? It consolidates between 9378 and 9600 in the next few days. If this market no longer rallies a lot from current levels, it may already be setting up for a bigger decline towards the 9200 level.

So, how do we trade this market? If you are a Tsupitero, taking a long position last Friday may be a good idea. Hopefully, this market can rally back up towards 9700 and you may start taking profits from your positions. However, if you were a Position-trader and you are still holding on to your position, I would suggest to take advantage of the next rally in the market to start liquidating your positions.

For those who are long in the PSE right now, you ought to be aware that this market is peaking already. Can't the PSE climb up and buck the trend of the DJIA? By some miracle, maybe, but, realistically, maybe not. Given the fundamentals of the Philippine economy right now, I just can't see anything special in the PSE that would warrant such a behavior. Can I be wrong and the DJIA may continue to trend up from here? Of course, I am no God. However, looking at its technical picture right now, this seven month upswing of the DJIA may just rest first for now, at the very least. If October and November passes and this market is still above 9200, then, maybe, just maybe, the market may continue to trend up thereafter.

Make no mistake about it. The US economy is still in a very bad state. It's simply not the Great Depression.

Short-term Traders/Tsupiteros vs. Medium-term/Position Traders: Recommendation for short-term traders or Tsupiteros are meant to be used by traders whose holding period are limited to one day to two weeks. Medium-term or position traders are meant to be used by traders whose holding period are two weeks to three months. Long-term investors whose holding period is more than three months should not follow these recommendations.