The Dow Industrials are back above the $10,000 level and the point and figure chartists are adding an "X" to their $50-box charts that builds on yesterday's triple-top buy signal. I've gotten several e-mails from subscribers asking if the triple-top has me thinking the Dow Industrials will gain 28.7% in the next 6.8 months (citing Professor Davis' study). The answer is no. It does not have me thinking that. What it does have me thinking is that demand is back in control of the Dow and starting to look bullish one again.
If we turn to our bar charts, we now see some technical resistance that comes into play at the $10,077 level. Here we have a downward trend and the ever tough 200-day moving average, deemed a longer-term moving average by most market technicians.
Dow Industrials Chart - Daily Interval
The point and figure charts are great for getting the bigger picture, but I also like to use the bar charts to look for levels of potential support and resistance. There will be no love on Valentine's day among the bulls and bears near current levels. Look for bears to be active near the downward trend and 200-day moving average of $10,075. If bears feel the economy is getting too strong they won't be around and I think that's exactly what will happen and we should see a Dow move to the $10,300 level in the next couple of weeks. With MACD now crossing above the signal and close to the zero level, I'd expect a clash of downward trend and the 200-day moving average, combined with a MACD at the zero level.
Don't get me wrong. This isn't going to be a cakewalk and a trip down lover's lane for the bulls. I think the Dow Transportation Average (TRAN) needs to show some leadership and yesterday's fractional decline and today's unchanged trading shows tentativeness. There's some cash that can still be put to work that hasn't rushed back into bonds as the 10-year YILED stays steady with a YIELD just under my critical 5.0% level. For bulls, I think they want to see some selling in bonds, a move higher in the TRAN away from that long-term downward trend dating back to May 1999 to provide the catalyst for a Dow move above its 200-day. These are the things I think a Dow bull looks for in the coming sessions.
For aggressive bulls that took the DJX.X trade yesterday that may have play February expiration, I'm suggesting a tight stop or selling strength and not wanting to risk the gains into tomorrow's expiration.