Indexes at Support or Resistance?

May 7, 2008: 9:24 PM CST

Are the Indexes at Support or Resistance?  Today’s action would lend to the “Resistance” camp, but let’s take a closer look.

Let’s start with the daily chart of the Dow Jones Index:

With this chart, I have Resistance plotted via two areas:

1.  The declining 200 day moving average

2.  The horizontal trendline via prior support/resistance

I have Support plotted also via two areas:

1.  Rising (up-sloping) trendline beneath price action

2.  The Rising 20 and 50 day moving averages

So which is it folks?

Let’s look at the S&P for a similar situation:

In this, I’m showing sort of a ‘rising wedge’ potential pattern.  Generally, rising wedges are bearish patterns, but it’s difficult to draw an exact converging trendline pattern that makes up the wedge.  It’s more akin to an upward sloping trend channel, but still a break beneath the lower trend AND the moving averages would be bearish and set up a potential retest of March lows.

Let’s pull the daily chart back just a bit and compress the bars to see how many valid trendlines we may be able to draw on the Dow Jones (and similarly in the S&P 500) Index:

At first glance, you may be asking what I have done on this chart.

I’ve drawn two (current) resistance lines (red) and two support lines (black).

Notice that three of these lines converge – along with the 50 day moving average – at or near 12,700.

There is a lot more going on than I’m showing on this chart, but even still, there are a variety of trendlines that can be drawn (not to mention Gann and Fibonacci retracements as well).

It’s best to keep your analysis simple, but it’s interesting to not how many seemingly ‘obvious’ chart points are setting up now.  It will be interesting to see and trade the resolution!

1 Comment

One Response to “Indexes at Support or Resistance?”

  1. TraderMD Says:

    Nice. I agree with the trend channel. The $RUT has started to break down out of its channel FWIW. I posted channel type analysis of the indexes on my blog earlier.

    http://tradermd.blogspot.com