The Dow Jones Industrial Average, also known as DJIA or DJ-30, has recently broken past the 12,000 mark. With that in mind, I thought it would be a good time to take a closer look at the Dow, to see where we are at and where we might be headed.
Fundamentally, I see two primary factors worth paying attention to:
1. Since the onset of the second round of quantitative easing, we’ve seen U.S. stock prices rise sharply. The FOMC’s recent statement suggesting QE efforts will continue supports further bullishness.
2. For the past 10 years, the U.S. dollar and U.S. equities have, for the most part, been negatively correlated. The U.S. dollar index is currently below 78. So long as it remains below 82, I think the case for dollar bearishness remains solid, which would be bullish for U.S. equities if the correlation persists.
Now, let’s take a look at the charts.
The weekly chart shows a bottom trendline sitting near 11,000, where the 50 MA is as well. We are seeing volume divergence, but not MACD divergence, as MACD continues to rise with price. As we have seen low volume rallies since the equities reached their low in April of 2009, I personally am more interested in indicator divergence than volume divergence in light of current market conditions for U.S. equities.
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In light of the fundamental factors and the lack of divergence, I’m not sure we’ll get a pullback to 11,000. To get an idea of other support areas, let’s take a look at the daily chart.
The daily chart, shown below, reveals a 50% Fibonacci retracement from the recent lows in December 2010 and the 50 MA sitting near the 11,500 mark. There is also no clear divergence here; MACD is rising, and volume seems to be holding fairly constant while price rises.
Click to enlarge
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