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Dow Technicals Are Approaching A Critical Support Level

Market technician Dave Chojnacki of Street One Financial recaps yesterday’s rare sell-off in the markets, updates the technical levels to watch out for, including a big support level the Dow is in danger of falling through.

Examining Wednesday’s Weakness

Equities opened weaker yesterday, as we saw a few signals in the prior session that may have signaled a pullback. The averages traded sideways after the open, through the morning hours. We then began to see a sell-off that lasted through the PM hours into the close.

Equities closed near their lows of the session, on an increase in volume over the prior session. The losses were moderate to significant by the final bell. At the close, the DJIA moved down 0.56%, the SPX fell 0.84%, and the NDX gave up 0.8%. Breadth was decidedly negative, 2.7 to 1, on weak volume, but above the prior session.

Technicals Show Weakening Momentum

ROC(10)’s declined across the board and all three major indices fell into negative territory. This represents a major downturn in momentum. RSI’s also took a big drop taking some of the overbought level off the DJIA (the DJIA RSI finished at 68.2).

The DJIA and SPX continue with their MACD below signal. This was one of the indicators which warned us of building near term weakness. The ARMS index ended the day at 1.56, a fairly bearish reading.

All three major indices developed ‘Engulfing bear’ candlesticks in the session. In the case of the SPX, the session wiped out nearly 12 days of trading gains. The recent sideways action was developing a ‘bull handle’, but yesterday’s action threatens that pattern.

Where To Look For Support

The DJIA has near term support at 19750. A break through that level, and we may see more near term weakness. For the SPX, that same support level is 2241. The SPX 20D-SMA now sits at 2244, which may provide some additional support.

The NDX has critical support at 4900. The NDX 20D-SMA is at 4882. The VIX was up for the third straight day, ending up 7.4% to 12.88. Near term support for the NDX is at 4925 and 4900. Near term resistance is at 4950 and 4962. Near term support for the SPX is at 2244, 2241 and 2225. Near term resistance is at 2262 and 2271.

Thursday Preview

Europe is slightly lower in early trade, while U.S. Futures are mixed in the pre-market. Today is the second to last trading day of the year, and we could see some fireworks today and tomorrow as a result.

We’ll see a good amount of economic data hitting the wires this morning, with Initial/Continuing Jobless Claims at 8:30am, International Trade at 8:30am, Natural Gas Inventories at 10:30am, and Crude Inventories at 11:00am.

The SPDR Dow Jones Industrial Average ETF (NYSE:DIA) was unchanged in premarket trading Thursday. Year-to-date, the only ETF tracking the Dow has gained 15.79%, versus an 11.21% 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 76 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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