Index Overview

Sep 15, 2007: 2:24 PM CST

The past week was positive for the market, in terms of percentage gains. We saw the Dow Jones Index increase just over 2% for the week, with four up-price days and only one down-price day.

The technical picture of the major indexes show rangebound conditions, yet a major impetus is on the horizon – Tuesday – that has the potential to send price soaring out of the range in either direction – up or down.

Until then, let us study the current simple technical picture of the indexes, and see where we’ve come and possibilities for the future.

Dow Jones ETF: DIA Daily View

  • We are very rangebound, with two exceptions up and down
  • Volume surged in a ‘capitulatory’ fashion during August – was that the “Bottom”?
  • Does the volume surge to the downside indicate more potential for further downside?
  • Price is trapped between $132 and $136 (Dow 13,200 and 13,600).
  • Price staged a remarkable recovery on Friday, opening far lower to close up (slightly) on the day
  • This is the purest chart of the market, free of indicators, which allows us to focus only on price

Dow Jones ETF: DIA Weekly View

  • According to this chart, one could be very bullish on price action, anticipating a potential surge to test at least $138 (Dow 13,800)
  • We see price has retraced to the bottom of an orderly trendline, and has held it quite nicely
  • Volume surged consistently for four weeks, creating a stunning pattern on the chart and setting index records
  • The two current trendlines are still in-tact for price
  • We see a major uptrend on the weekly chart with no ‘warning’ conditions in sight.

Nasdaq ETF: QQQQ Weekly

  • Similar picture to the Dow – similar interpretation
  • Price is floating upwards to stay within the established parallel channel
  • Price actually retested the June highs with the tag of $50 last week.
  • Strong, solid, and confirmed uptrend is in place
  • Four week ‘sell’ volume climax is observed as well, but clearer
  • Price nipped below the rising trendline (channel) but recovered before closing below it (non-confirmation of break)


While the Fed meeting Tuesday has the potential to add excess volatility to the price action, the current technical picture of the major US indexes is strong and bullish (long-term).

The recent price volatility in July and August served only to pull the ETFs back to the rising trendlines for a healthy test and bounce off support.

Price is still making long-term higher highs and higher lows, confirming the uptrend.

The Daily charts indeed are in confirmed downtrends, but now appear to be shifting to more consolidation trends instead of downtrends.

Remember that price needs time to consolidate after a big move, and with the gains from August 2006 to today, price has extended itself greatly.

Unless the Fed raises rates (who’s betting on this anyway?) or does something majorly unexpected, price most likely with stay within its channel as observed on the weekly charts.

Personally – and it’s just me – I would stay out of major swing trades until the market settles, be it Wednesday or Thursday, from the Federal Reserve decision.

A shock to the market from the Fed will cause positions on the wrong side of the market to be ‘bowled over’ rapidly, and if you don’t have a stop in place, your position will be dragged down with it if you are unaware. It’s best to try to enter in milder times, rather than wilder times in the broad markets.

Whatever you decide to do, stay safe.


1 Comment

One Response to “Index Overview”

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