DJIA Holding Broken Resistance

01/05/06 09:36:21 AM

by Arthur Hill

The DJIA is consolidating above broken resistance with a falling flag, and a breakout would signal a continuation higher.

Security: $INDU
Position: Accumulate

Broken resistance turns into support: This is a classic tenet of technical analysis. The Dow Jones Industrial Average (DJIA) established resistance around 10700 with highs in June, July, August, and September (Figure 1). The DJIA failed to break this level at least four times before finally breaking through with a surge in November. Now that forces of demand have conquered this level, it has switched sides and now acts support. Funny how allegiances can change.

FIGURE 1: DJIA. The Dow Jones Industrial Average established resistance around 10700. It failed to break through this level until November.

Graphic provided by: MetaStock.

Graphic provided by: MS QuoteCenter.

The DJIA confirmed support at 10700 with a bounce in December and a bounce in early January. However, the bulls are not out of the woods just yet, as a falling flag has evolved. These are bullish continuation patterns, and a break above the mid-December high (10950) would signal a continuation over the October-November rally. A failure around 10950 and a move below the early January low (10684) would be bearish.

The DJIA got off to a good start in January, but the Aroon indicators have yet to forge a bullish crossover, and I would like to see a bullish crossover before anticipating a flag breakout. The green indicator shows Aroon as up and the red indicator shows Aroon as down. Aroon down surged at the end of December and remains stubbornly high (>90). In fact, the cross above Aroon up is negative. Therefore, I would wait for a confirmation signal and look for Aroon up to cross back above Aroon down. My feeling is that this will coincide with a flag breakout.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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DJIA Holding Broken Resistance

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