Is the Intermediate Advance for the DJIA in Jeopardy?

By: Ray Tato | Mon, Jun 19, 2006
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Since the low made at 9708 in October of 2004, the DJIA has mapped out an intermediate advance. Within this advance a Trend-Channel has developed. The top of the channel or price range has a Long Term Return Line with points at 10984 and a 'throw-over' high at 11670. If you look closer at Daily Chart # 1, you will notice that the 'throw-over' high is also the Head of a major reversal pattern called a Head & Shoulders Top, now present on the daily chart of the DJIA. Also, notice that I have included an H&S Top price objective to be near the 10400 price area, which is below the Long Term Support Line that borders the price range of the intermediate advance. This lower boundary line starts at the 9708 low and extends through 10156 and on to the 10450 price area, as shown in bold. This 10450 price on the DJIA is important to the overall intermediate bull trend. But, could another price area in the short term be even more important to the overall intermediate bull trend?

Yes! If you turn to Daily Chart #2, notice that an even larger Head & Shoulders Top could be forming. If so, the neckline would extend from the January low at 10661 to the June low ( so far ) at 10698. Taking the slope of the neckline, it looks like 10700 is a major price area to watch. Also, if you look closer at daily Chart #2, notice that a pullback has occurred back to the Neckline of H&S Top #1. Is this area at the neckline Resistance???

Yes; based on Classical Bar Charting theory it is. But, could the pullback to the neckline at 11045 be a set up for more than just resistance? Could something much larger be looming; like H&S Top # 2?? Maybe. Turning to Daily Chart #3 below, if you look to the left side of the chart, notice that the January high is 11047. Also notice the high of the pullback to the Neckline was 11045. These are Similar highs; could symmetry be playing a role here in establishing relative highs? Maybe. Could the hypothesized RS #2 high at 11045 be in?... If so, where does this leave us?

Well, if you put it all together, the height of H&S Top #1 is 630 points. This gives us a Bar Charting target price of 10400. With this being said, if the pullback high to the neckline shown in Daily Chart #2 does indeed hold, and we start to go back down, could a downside target for the DJIA be well below the lower Long Term Support Line, especially if H&S Top #2 has a pattern height of 970 points? And, is it possible that the low that started the Intermediate Advance in Oct. of 2004 at 9708, could become a target?

If you turn to Long term Daily Chart #A, this chart shows what could happen to the price of the DJIA, when considering the potential downside possibilities of each of the Head & Shoulders Tops mentioned in this report. As I said above, H&S Top #1 is already active and has a minimum downside price objective of 10400. When considering the enormity or potential of this move down, the possible cascading effect from setting off each Major Reversal pattern, from H&S Top #1 to H&S Top #2 is very large. From the up-sloping lower support line that borders the Intermediate Advance all the way down to the 9700 area, the potential of these two theorized major reversal patterns is huge! Not only could the 9700 area be under attack theoretically if the larger H&S Top #2 is activated with a close below 10700, but the 2002 Support High at 9000 could some day be a target as well. Watch the low made in June at 10700, this looks like, or could be the pivot point between a tired bull and a hungry bear. We will see!



Author: Ray Tato

Ray Tato

Disclaimer: Ray Tato or the Apprentice Technicians Outlook will take no responsibility for the accuracy of these source charts for price and time comparisons. They are the representations of an outside agency. I did not create the original content, supply the data needed or generate the original source charts for public viewing. I only try to convey what I see as a technical analyst. Nowhere in this abstract is there any indication to trade or invest. This piece is for educational as well as theoretical practice only. This is an exercise, and can in no way be viewed as a reason to put ones capital at risk. I do not advise you to trade based on this report.

Bio: Ray is an independent analyst and investor who began his education in the financial markets in 1985 by working on the floor of the Chicago Board of Trade. In 1999 Ray began his Technical Analysis studies at the Chicago Mercantile Exchange where he became a classical bar chartist. Along with charting, Ray like to study cycles and wave theory and mostly follows the DJIA. In his spare time, Ray plays blues on the harmonica. Ray lives in Chicago.

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