Ever since dipping below the 50 day simple moving average in the waning days of 2012 and then breaking back above it on the first trading day of 2013, the Dow Jones Industrial Average has held above the key technical component. Note in the image the blue arrows marking periods of consolidation for the Dow chart during the upward trek this year.
Anytime approaching the 50 dma, the Dow’s value turned to climb higher, although the distance between the low of the consolidation and the 50 dma was tightening on each pullback. Earlier this month, the Dow made an intraday dip below the 50 dma only to promptly spark a buying spree to pull back above the moving average. While some technicians interpreted the bounce as a sign of strength in the uptrend, others read it as a cause for concern.
Well, if that move didn’t rings some bells of bearishness, on Thursday the Dow plunged through the 50 dma, making a new “lower-low” in the chart and causing the 50 dma to start to flatten. It is also notable that the Dow fell below a support level at 14,900.
Equities are coming out upward on Friday to rally some after a 560-point, two-day, plummet spurred by concerns of weakness in the global economy and possible ending of QE3. The question now is: Will the Dow be able to push back through the fallen support (now resistance) at 14,900? Perhaps even more importantly, will people employing the “buy the dip” mentality be strong enough to get the Dow back over the 50 dma around 15,000? Bulls will likely be cautious until those things happen.
Also note the “lower-high” at 15,340 in June, following the Dow’s record high at 15,542 in May. A short-term downtrend is being established since that May peak that is hard to ignore at this point. Every chart has to pull-back at some point; they simply can’t go straight-up forever, but this break below a key moving average and the channel forming in the past five weeks has the Dow looking the weakest it has so far this year.