Weekly Index Overview – Resistance Ahead

Nov 30, 2007: 10:58 PM CST

This week saw a precarious shift in the direction of the major US Indexes due to comments by Federal Reserve Officials who still have power to affect price swings in markets. The bulls scored a major victory but still have work to do to overcome the daily downtrend on most Indexes. Let’s look:

The Daily Chart of the Dow Jones Index shows a temporary downtrend, with lower highs and lower lows. The current structure has been broken with a higher swing high, but that high has taken us into key resistance, and a ‘down-swing’ is probably in order which would take us back to (at least) 13,000 to retest that level to see if price can make a higher low. Resistance is also coming in via t he declining 50 period daily moving average.

A recent price divergence with the momentum oscillator hinted that an ‘upswing’ was to come in price, which is exactly what happened. Divergences – especially those that occur at the bottom of the Bollinger Bands or Keltner Channels, often serve as high-probability events to return to the 20 period moving average, which is exactly what occurred here.

To be re-confirmed as an uptrend, price needs to swing down to make a higher low and then swing back up and take out the most recent higher high at 13,400. Until then, price is still in a ‘technical’ daily downtrend.

The weekly view shows an interesting picture:

Let’s look at this individually:

  • There is a key momentum divergence forming, as price made a higher high, momentum made a lower high
  • Volume is higher through the consolidation period… is this active distribution taking place?
  • The momentum oscillator registered a key New Momentum Low not seen in over two years. Significant?
  • Price carved a new price low following a new price high. Confusion?
  • A Broadening Formation is clearly developing. Bearish implications?
  • Price is currently trapped between the weekly 50 period (one year) moving average and the 20 period (four month) moving average.


We see resistance on the daily chart from the prior ‘horizontal line’ support/resistance, and from the flat/declining 50 period moving average.

We see resistance on the weekly chart from a declining 20 period moving average.

Price on the daily chart has experienced an upswing and – in my assessment – odds favor a brief downswing in price to retest prior levels to see if a higher low can be established.

Remember, it’s often best to ‘play’ the market one day at a time and one swing at a time and not get too far ahead of yourself. If price breaks above these levels – which it can do – then it will do so against the odds as generated from a basic level technical analysis approach.

Study your own charts and identify potential conclusions from your own experience.

1 Comment

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