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August 29, 2005

Dow 30 bounce back from support line, Mon., August 29, 2005, 10:02 AM

This chart shows how effective are the trend lines in determining technical support. Despite incredible amounts of bad news, and a very weak opening, the Dow 30 has bounced back. At least for now.

The trend is still down, and the support line will likely be re-tested today.

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p.s.: To answer a reader's comment/question about the importance of time horizon when using technical analysis tools like trendlines, let me point you back to what I published six days ago.

In the article called, Trendlines revisited, Tues, August 23, 2005, 1:15 PM, I wrote these important sentences:

When a trendline is drawn through a series of cycle low points; that's a support line.

When the trendline is drawn through a series of cycle high points; that's a resistance line.

The longer the line, as in years, months, weeks, days, or hours, the more weight one must put to the trendline validity."

So, clearly, breaking a short-term support line, or not breaking it as the case may be, is not as important as doing the same for a long-term support line.

But that's the nature of the equity market, because some traders are trading Intra-Day or Intra-Week, while others are Extra-Year (long-term) traders. If you are a long-term oriented trader, you are obviously focussed mostly on long-term trendlines. That's why I published charts in the past week showing the proximity of the three-year Dow 30 trendline.

So, Dino, length matters -- in this case.

Posted by Posted by Bill Cara on August 29, 2005 10:04:16 AM | Category: Cara Today in the Market

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