Dow Jones Industrial Average is back in action having survived a break down test at 10000. We consider 10977 to be the new resistance for Dow Jones. This level acted as a resistance two times in 2005 and a weak support in 2008. A failure to breakout of this resistance can result in a retest of the 10000 mark.
Although, this rally has a good support from latest encouraging economic reports on jobless claim, improved industrial production and factory orders, and retail sales; one noteworthy point though, is the price increase with decreasing volume.
Stockjupiter.com recommends a 'cautious' outlook for Dow.
P/E for DOW is 16.47X compared to 22X a year ago and earnings is almost twice compared to last year. Based on the current earning and last year's P/E, DOW should be at 14000. DOW commands a P/E of 18X-19X is our opinion, which takes the index to 12000 level. Reaching this level will require good news from economic indicators. Keep watch of our economic indicator trend displayed in our home page and commentary in the latest economic alert page. Continued weakness in Housing and poor Job market could keep consumer sentiment low, which in turn could lead to decline in industrial product demand; bad for DOW 12000 dream.
Keep a Watch for two important indicators:
Improved volume: Over the past 8 months, the volume of DOW has been below 65 day moving average. Strength of DOW depends on price rally with increasing volume (approx 2 BN level).
Moving Average: Keep a keen focus on 200 day moving average for DOW. Price increase above this level with huge volume will take DOW to 12000 level by 3rd quarter of 2010.
DOW Weekly Chart for 07 March, 2010