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Massive Resistance, Chart study

|Includes: SDOW, ProShares UltraPro Dow 30 ETF (UDOW)

We presented this to subscribers at on Thursday evening, arguing for reduction in long exposure to equities :

After a massive spike today in virtually everything, we find the DJIA and GS coming up against material trend resistance.  October has been the highest-gaining month in DJIA history and we suggest limiting overall long exposure after such historic, sharp rallies. 

These charts below were created an hour before the end of trading, and at the end of the day the DJIA was in roughly the same spot.  The charts can be clicked to download a larger version.

The first chart is a daily chart.  We see graphically how lucky we've been to have been bullish almost every day since the start of the month.  However even historic rallies do come to an end, and while there is much to be bullish about on a technical basis we must remain aware of how much today's market resembles the "omen-ous" charts, and that the 2-year uptrend (straight upward-sloping line in blue) is now likely to cause at least some upward resistance.  The mildly osciallating blue line is the 200-day moving average. 

Also notice that the momentum indicator in the 1st bottom pane is at the highest level of the past year, and at a level from which the market normally corrects.  Volume, shown in the middle bottom pane, has not been strong during October.  In the lowest pane we see that this momentum indicator has met its downtrend. 

DJIA daily - October 27 2011

The chart below is a weekly chart, shown for "bigger picture" perspective.  In the 1st bottom pane we see that the momentum indicator could go much higher on a weekly basis before being at a high, and while the momentum indicator in the bottom pane has met its downtrend there's plenty of room to go higher before being overbought on a weekly basis.  The anemic volume during October is even more evident in this weekly view, seen in the middle bottom pane. 

The mildly oscillating blue line on the main chart is the 200-week moving average.  It's self-evident what a key technical mark it is, and it factored in our bullishness in early October when the market stopped dropping at that 200-week moving average line which at the time coincided with the 2010 break-even level.  The red horizontal lines representing the break-even levels for past years remain on this weekly chart, but the labels for those lines have been removed for clarity.

DJIA weekly - October 27 2011

Other interesting technical notes, not shown in our Update today, is that GS is just below a downtrend stretching back to mid-April, which was two weeks before equities and commodities peaked for the year.  So too is XOM, Exxon Mobil, just below a downtrend begun mid-April.  IOO, the stock we often show in our email chart updates, which is a fund comprising the 100 largest global companies by market cap, is also just below a downtrend begun mid-April and is also slightly below its 200-week moving average.