Dow Jones Industrial Average Develops Bearish Trading Pattern

Market technician Dave Chojnacki of Street One Financial recaps Tuesday’s market pullback and updates the key technical indicators to focus on as we close out the month of February.

Durable Goods and Housing Price Index numbers disappointed on Tuesday morning, but the market opened mixed and traded choppy for the first part of the morning. New Fed Chair Powell was speaking in DC and his comments regarding the strength of the economy spooked Bond traders as the 10 Year Treasury Yield began rising.

As interest rates rose, equities began falling, and momentum picked up as they day wore on. The 10YR ended the day at 2.91% and the major averages ended down significantly. At the close, the Dow Jones Industrial Average (DJIA) was down 1.1%, the S&P 500 (SPX) fell 1.2%, and the Nasdaq 100 (NDX) gave up 1.2%. Breadth was decidedly negative, 3.4 to 1, on below average volume. ROC(10)’s declined in the session for all three major indices, but they remained in positive territory.

RSI’s moved lower, but remained in the low to mid 50’s. The major indices remain with their MACD’s above signal. The ARMS index ended the day at 2.24, a very bearish reading.

The major indices broke their string of three consecutive sessions to the upside and finished near their lows of the day. The DJIA and SPX fell back below their 61% Fibonacci retrace levels, but remained above their 50% level. The NDX continued above the 61% level.

All three indices developed an “Engulfing Bearish” candlestick in the session. The DJIA closed the day at 25410, just off its lows of the session. It held above its next support level of 25271, which is its 50D-SMA. The SPX closed at 2744, its low of the session. It barely held above its 50D-SMA of 2734.

The NDX closed at 6900, its low of the day. The NDX continues to be the strongest index near term. Its 20D-SMA is now at 6720. The VIX spiked 17.6% to finish at 18.59. It is creeping back to high volatility levels.

Near term support for the NDX is at 6850 and 6800. Near term resistance is at 6950 and 7000. Near term support for the SPX is at 2734 and 2725. Near term resistance is at 2750 and 2762.

Europe is lower in early trade Wednesday, while US Futures are slightly higher in the premarket. Major economic reports on tap today include GDP at 8:30am, Chicago PMI at 9:45am, Pending Home Sales at 10:00am, and EIA Oil Report 10:30am.

The SPDR Dow Jones Industrial Average ETF (DIA) rose $0.20 (+0.08%) in premarket trading Wednesday. Year-to-date, DIA has gained 2.66%, versus a 2.84% 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 #1 of 79 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.