Forecast for the dow jones index

A week of steady, small gains, for the Dow Jones index, which closed on Friday at 11,491.91, having fallen 7 index points on the day, but ending the week higher by 85 points as we approach the holiday season and the end of the trading year. A key feature from last week’s daily chart was the short term support provided by the 9 day moving average which continues to provide a consistent platform as the current bull trend extended once again last week. The break and hold above the 11,450 price area was also an important level last week, and as such should now offer a further platform in the next leg up of the current move. Below the current price action, the 14 day and 40 day moving averages also continue to point sharply higher, and with the 200 day moving average also sloping upwards, the longer term trend for the index remains firmly bullish as we move into the New Year. Sadly, from a personal perspective my year end forecast for the index of 11,875 now seems unlikely, but nevertheless I still remain firmly bullish for equities, and expect to see US stocks in particular perform well next year.

My only concern in the short term is that of the volume on Friday which came in well above average at 358.3M and almost double the trading volume on Thursday. For those of you familiar with my stock trading analysis, I use a technique called VSA or volume spread analysis to predict turning points based on insider buying and selling by the market makers, and Friday’s extreme volume is certainly a worrying signal, and may be an early warning that the market is preparing for a turn. In this case, Friday’s price action was contained in a very narrow range, suggesting that the market is reaching a top, as the market makers struggle to sell into a resistant market, as logically, this amount of volume ( or effort ) should have converted to a sustained move higher, which was not the case. Clearly, the market is beginning to struggle at this level, and as such we may see a pull back in the index in the short term this week ahead of the holiday season. It will be interesting to see the price action, and in particular the associated volumes which are likely to the thin ahead of the Christmas break. So, in short, this could be an early warning signal of potential short term weakness for the index and equities, but as always we need to wait for this signal to be validated in next few week’s of trading.