Reflecting on the DOW...

ChartMan

Legendary member
5,580 46
Here's how I see things over the past months. I tend to give more credence to current events, rather than look back over history, except when things become unclear, as they are now. I feel the DOW is at a crossroads, from a longer term point of view.The average major rally/trend has lasted in the order of 2-3 months over the last 3 year period, making an average trading range of 10,240 to 11,000 plus the odd excursion beyond these. The last major rally that lasted longer than this was way back in late '98 and that went on for over 10 months, before finally petering out after a gain of a little under 50%.
Playing around with regression lines, going back 3 years, shows up an interesting fact.... I have always ranted on about 10,240 being a key magic number ( as shown again today) from the long term charts, it is clearly a major "natural" horizontal support line.Drawing a number of regression lines from each main peak and trough going back to Jan 99 to today, they all cross/diverge at the 10,240 line at about mid May '01. Even taking regression lines from Jan 99 onwards,and "seeing " what level they end up at around mid May 99, they always "tend" to 10,240.Very strange...Currently, the regression lines end up fanning out to a range between 9700 and 10,100...Given that up until the September falls, the regression values were diverging at 10240, does this mean that the balance has to be re-established? If so, we should see continued substantial gains to pull up the regression lines back to 10,240. Not being one of the world's greatest at maths, maybe someone can cross correlate some of these regression lines...
So, the current up trend has been in force now for over 3 months. Time for a change? I don't think so. Again, here's why, and it is to do with regression lines. It doesn't take too long before a regression line seems to get "established". From that point onwards, it becomes very stable and deviates very little from it's original shape/slope with respect to the DOW price action.That's what we'd expect. Looking back over the last few major rallies, it is evident that during each rally, the amount of time spent above the regression line is about the same as is spent below the line.This again is what we would expect, except in exceptional circumstances,as in Sept. 11. The true statement is, I guess " the area under the line is the same as the area above the line"- corrct me if I'm wrong, but I don't think it's that important. What is important is the fact that the dow spends half it's time above the regression line and half below it whilst in a major trend....Still with me? :) So looking at the current rally,it would "appear" that we have spent more time under the line than above it, and have been oscillating about it's axis since Sept 11. The time has come to switch from below the line to above the line, having spent the last 16 days below it. Drawing regression lines from the low on Sept 29, to each successive high,it can be seen that excursions above the line are short lived, and where "excessive", soon drop back down below the line, thus tending to drag it down.
What does all this mean? well, short term at the start of a rally, the regression line acts as an excellent switch line for day traders,short term swing traders, as deviations from the line are short lived. As the time frame expands, the regression line becomes a trend indicator, for longer term buy and hold plays. Given the current up trend will continue,the target upside is 10,700....
Any way we're sitting right on the 10,240 line and that's where I came in, saying the picture is unclear.Some indicators are showing "confirmation" of the price, some are not.It hasn't helped having the Xmas period and the low volumes which can screw the TA indicators. The current 10 min chart looks good. Ignoring the big drop 2 days ago, there is a well established uptrend with support at 10,226. So until we break that, it's up.....
Take note of the major down trend line going back to Jan '00 that's right on 10,240....need I say more? And don't say "what about the peak in Mid May '01" either :)
 

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