A Chart Update on the Dow Jones and Transports Near Fresh New 2010 High

Oct 13, 2010: 1:03 PM CST

Did you know that the Dow Jones Industrial Average and the ‘confirming’ Dow Transports Index were mere points away from a fresh new 2010 high – which would make a new recovery high not seen since September 2008?

That’s just before the worst of the 2008 Bear Market hit – and we’re close to topping those ‘panic’ levels seen 2 years ago.

Let’s fly-by for a quick update on these two important indexes:

Though I focus most of my analysis on the S&P 500, the principles are the same in related equity indexes.

Case in point, on a firm breakout above 1,130 in the S&P 500, the upside target became 1,170, then 1,200 to 1,220 on a break above 1,170 (this morning).

The Dow showed a similar structure and has experienced the expected outcome as seen in the “passing through open air” (no overhead resistance) that began with a breakout above the key 10,700 level.

That set the next ‘stopping point’ price target to 10,900, which was mainly just a target from the May price swing high.  And now that we’re above THAT level, the target shifts to the retest of the 2010 high at 11,260 or 11,200 (for a round number reference).

It’s a great lesson in the “Open Air” concept – that when a price breaks key overhead resistance, and there are no known reference levels above, odds favor a “slice” higher for a move up to the next known resistance level – which is usually a pure price target (as shown above).

That despite all the negative divergences in volume and momentum – price is still king.

So what now?  Today gave us the anticipated “Popped Stops” rally on the firm break above 11,000 (as bears/short sellers again threw in the towel, buying-back positions at a loss which drives price higher).

Such is the importance of the “Popped Stops” concept which sets-up excellent opportunities for intraday traders.

I’ll be presenting on this topic at the Las Vegas Trader’s Expo in November (17-20).

Here is a link and description of my presentation:

“The Popped Stops Play:  How to Profit When Good Trades Go Bad”

Today’s Trend Day is an excellent example of that concept – as was the break and surge above the resistance at 10,700.

Yes, they are.  The key index levels to watch on the Transports are 4,500 (notice the recent ‘surge’ of “Popped Stops” and new bulls buying on the breakout from that level) and the 2010 high of 4,800, which is now the immediate target.

It’s a bull’s game to lose above 4,800 and of course at new highs in the Dow – should they materialize.

I did something unusual with the chart above – drawing a dual Arc Trendline structure – almost like a “Rounded Reversal” or “Cup with Handle” style pattern.  I find these very interesting.  They’re also called “Mirror Image” patterns as well.

Anyway – the main idea is to watch what happens as these markets rise to test the respective 2010 highs.

If you are unfamiliar with the concept, take the time to study the charts and learn the “Open Air” concept and how it can help your trading.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

3 Comments

3 Responses to “A Chart Update on the Dow Jones and Transports Near Fresh New 2010 High”

  1. David O. Says:

    I enjoy your evaluations…Corey.

  2. writersblock Says:

    Corey, do the weakness into the close, and the long tail on the daily candle negate these positive signs?

  3. Chrise Says:

    Very intricate graphs but truth be said, am afraid to trade. Very afraid.