Overbought Dow Jones Industrial Average In Need Of A Pullback

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December 15, 2017 8:19am INDEXDJX:.DJI NYSE:DIA


Technical analyst Dave Chojnacki of Street One Financial wraps up the trading week with a deep dive into the important technical indicators for the major U.S. averages, which are in need of a pullback after encountering overbought conditions as of late.

Good economic numbers pushed equities higher at the open on Thursday. The Dow Jones Industrial Average (DJIA) even hit a new record intraday high, before the indices began to reverse. The DJIA and S&P 500 (SPX) have been trading in overbought territory for several sessions. A controlled here pullback would be healthy for the market.

The major averages sold off through the remainder of the session, as there were some rumblings that the tax deal was not completely sealed. By the end of the day, the losses were small and the major indices closed near their lows of the session. Some of the action may have been options related, as they expire today.

At the close, the DJIA fell 0.31%, the SPX gave up 0.41%, and the Nasdaq 100 (NDX) inched down 4.7 points. Breadth was decidedly negative, 2 to 1, on below average volume. ROC(10)’s declined across the board, but remained in positive territory.

RSI’s moved lower, with the DJIA remaining slightly overbought at 74.1. The SPX fell to 66.2 and the NDX brought up the rear at 59.7. The DJIA and SPX continue with their MACD above signal, while the NDX remains below. The ARMS index ended at 1.43, indicating the end of day sell off.

The DJIA closed at 24508, but hit an intra-day record high of 24672. The DJIA broke its string of record closings, but remains well above its 20D-SMA of 23996.

The NDX closed at 6389, managing to hold above its 20D-SMA of 6351. Earlier in the session, it traded a point above its record closing high of 6422, before retreating. Its upper Bollinger Band® is now at 6445.

The SPX closed lower at 2652. It remained above its 20D-SMA of 2625. The loss removed some of the overbought pressure. The VIX finished at 10.49, up 3%.

Near term support for the NDX is at 6375 and 6351. Near term resistance is at 6400 and 6422. Near term support for the SPX is at 2650 and 2625. Near term resistance is at 2664 and 2671.

Europe is mixed in early trade Friday, while U.S. Futures are pointing higher in the premarket. Major economic reports on tap today include Empire State Mfg. at 8:30am, Industrial Production at 9:15am, and it’s also Options Expiration day.

The SPDR Dow Jones Industrial Average ETF (DIA) rose $0.79 (+0.32%) in premarket trading Friday. Year-to-date, DIA has gained 26.19%, versus a 19.95% 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 #3 of 80 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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