When the Dow Jones Industrial Average Index held its major long-term support at the 38.2% retracement from the March 2009 low in October 2011, it caught a lot of traders off guard, not to mention short. The Dow touched its 2011 high on light volume and continued short covering in late January despite less-than-impressive earnings in early 2012. However, the key here is not the 2011 top, but likely the double top from April/May of 2008, the ominously priced high of 13,136.69. This is where equities had their momentum squashed prior to the financial crisis hitting in earnest in the fall of 2008. Can unlucky 1313 kill another Dow rebound?
The Eurozone crisis still is unresolved and many potential time bombs exist as the U.S. economic recovery is just beginning to take hold. More ominous, from the technical side, is that the sharp rising trendline from the bull move broken in August is sitting just above that level as additional resistance. A retest of a broken trendline can create a very powerful move if there is a failure. If the Dow fails at 1313 or at the broken trendline, it will likely retest support at the 200-day simple moving average.
David Wienke is a technical analyst and founder of Triquetra Resources Ltd in Riverside, Ill (www.triquetraresources.com).