Technically Speaking
Darin Newsom DTN Senior Analyst

Thursday 10/17/13

"Ode to Joy" for the Dow? Maybe Not.

"Deine Zauber binden weider; Was die Mode steng getelit." This line comes from Friedrich Schiller's poem "Ode to Joy" and incorporated into the final movement of Beethoven's 9th Symphony. This line translate to, "Your magic brings together what custom has sternly divided." Is there a better way to describe the joy the general population feels now that all the problems of the U.S. government have been worked out?

Source: DTN ProphetX

The Dow Jones Industrial Average has been a good barometer of the ebb and flow of headlines the last few weeks, rallying on talk that deals would soon be struck and selling off when things inevitably broke down. Through it all, as strange as it seems, technical patterns held together well. And if this continues to hold true, it doesn't bode well for those feeling the joy that all is now well.

Take a look at the daily chart for the DJIA. The index posted a high of 15,709.58 on September 18, in conjunction with daily stochastics (bottom study) calculated not only above the overbought level of 80%, but well above 90%. The next day saw the DJIA close 40 points lower, while daily stochastics established a bearish crossover. This signaled the minor (short-term trend) had turned down.

And down the index did go, to a low of 14,179.42 on October 9. Note though that daily stochastics had fallen into single-digits, again well below the oversold level of 20%. October 10 saw the DJIA spike higher, rallying 323.09 points as it closed on its daily high. Since then there has been a great deal of back and forth, with the general uptrend resulting in a high of 15,374.15 on October 16.

Now take a look at how all this rally relates to simple Dow Theory retracements of 33%, 50%, and 67%. The Dow easily moved through the 33% and 50% levels near 15,049 and 15,125. But note that this week's high (as of this writing) is a test of the 67% retracement level of 15,379.86.

It is also interesting that daily stochastics are back above the oversold level of 80% as the index tests key retracement resistance, particularly since daily stochastics continue to indicate the minor (short-term) trend remains down. Yes, down. But what about that bullish crossover in conjunction with the rally of October 10 you ask? A close inspection of show the initial rally was so strong that daily stochastics were pulled back above the 20% level as they established a crossover. Therefore, no clear signal of a bullish change in trend was created.

We should also take into account the ongoing influence of the bearish key reversal posted by the DJIA this past August (for more information go back to the blog from September 15, "DJIA: Where There's Smoke There May Be Fire"). With the major (long-term) trend still down, the secondary (intermediate-term) trend also down on the weekly chart (not shown), and bearish signals still indicated on the daily chart, it would seem the joy associated with Thursday's headlines could be short-lived.

To track my thoughts on the markets throughout the day, follow me on Twitter: www.twitter.com\Darin Newsom


Commodity trading is very complicated and the risk of loss is substantial. The author does not engage in any commodity trading activity for his own account or for others. The information provided is general, and is NOT a substitute for your own independent business judgment or the advice of a registered Commodity Trading Adviser.

Posted at 12:19PM CDT 10/17/13 by Darin Newsom
Comments (2)
would love to know how to follow your comments on grains and cotton markets? where is the easiest place to see those thoughts?
Posted by LARRY WARD at 4:44PM CDT 10/17/13
Hi Larry. Almost everything I do is right here on DTN. You can find it in daily analysis, this Technically Speaking blog, and my weekly On the Market column.
Posted by DARIN NEWSOM at 12:39PM CDT 10/18/13
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