A Pullback Should Be Expected For The Overextended Dow Jones Industrial Average

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September 22, 2017 8:23am INDEXDJX:.DJI NYSE:DIA

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Technical analyst Dave Chojnacki of Street One Financial wraps up the trading week with a recap of Thursday’s bearish market action, and previews Friday’s session with an update of the important technical levels to watch for the major U.S. indexes.


Equities moved lower at the open on Thursday, despite good Initial Claims numbers and better than expected Philly Fed metrics. The major indices found a bottom after the first hour, but then struggled to move higher, as the Dow Jones Industrial Average (DJIA) and S&P 500 (SPX) were coming off a string of new highs.

The pullback was orderly, and the Nasdaq 100 (NDX) was the biggest loser. Once again, tech stocks were being sold, and this resulted in a few near term technical indicators going negative. The last half hour saw stocks selling off and the major indices finishing near their lows of the session.

At the close, the DJIA was down 0.24%, the SPX fell 0.3%, and the NDX lost 0.65%. Breadth was slightly positive, 1.3 to 1, on below average volume. ROC(10)’s declined, with the NDX crossing back into negative territory. The DJIA and SPX remain in positive territory.

RSI’s moved lower, with the DJIA moving below the overbought level of 70, to 68.2. The NDX finished at 50.2 and the SPX at 62.3. The NDX saw its MACD cross below signal, while the DJIA and SPX remain above. The ARMS index ended the day at 1.06, a nearly neutral reading.

The DJIA and SPX were becoming a little extended, so a pullback was not unexpected. The continued weakness in the NDX saw its ROC(10) go negative, its MACD move below signal and it closed below its 20D-SMA of 5942. The NDX closed at 5934 and remains above its 50D-SMA of 5906. We may see additional weakness, with critical support at 5750.

The DJIA closed at 22359 and remains comfortably above its 20D-SMA of 22026. The SPX closed right at the 2500 level, above its 20D-SMA of 2476. It continues above its Trend-line of 2476.

Despite the equity pullback, the VIX slipped 1.1% to 9.67. It once again approaches new lows.

Near term support for the NDX is at 5925 and 5906. Near term resistance is at 5942, 5950 and 5975. Near term support for the SPX is at 2500 and 2476. Near term resistance is at 2512 and 2525.

Europe is slightly higher in early trade Friday, while U.S. futures are mixed in the premarket. The only major piece of economic data on tap today is the PMI Composite at 9:45am.

The SPDR Dow Jones Industrial Average ETF (NYSE:DIA) was unchanged in premarket trading Friday. Year-to-date, DIA has gained 14.84%, versus a 12.60% rise in the benchmark S&P 500 index during the same period.

DIA currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #4 of 75 ETFs in the Large Cap Value ETFs category.


Disclaimer: The content of this article is excerpted from a daily newsletter from Street One Financial. While ETF Daily News may edit the contents and add a relevant title to the piece, the author, David Chojnacki, does not endorse or recommend any issuer or security mentioned herein.

About the Author: Dave Chojnacki

Dave Chojnacki is the Chief Market Technician at Street One Financial. He provides technical support for the Street One team and also develops individual analysis for Clients as requested.

Dave is a major contributor to the ‘ETF Daily’, a morning newsletter providing clients a daily look at market technicals of the major indices and selected ETF’s. Market trends, support and resistance levels are provided in the daily letter. The Technical portion of the daily can also be found on Seeking Alpha. Mr. Chojnacki has been quoted in a number of industry publications including the Reuters, ETF Trends, Minyanville, Yahoo Financial and Investors.Com.

In addition, Dave assists with desk trading when necessary. He possesses a Series 7 and 63.

Prior to joining Street One, Dave designed and developed I/T Systems for the Insurance and Financial Industries.


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