PLEASE....could you give me the current numbers for these supposed "downtrend" lines everyone is watching for a break to the upside??? Nasdaq . . . SPX . . . INDU. (October 19, 2002)
You have probably been watching CNBC where one of the floor traders was supposedly scratching his head Friday wondering what the Dow was going to do as it failed to 'breakout' of its channel and was supposedly right up against that level. Channels are trendlines that often define a range an index or stock trades in until it makes a definitive breakout. They are also where you want to draw them and are thus subject to different interpretations. Generally we like to look at the first channel lines that are formed when a trend starts as those 'set the bar.' After that you look to the trendline that is hit the most and continues the trend.
What was referred to Friday was a down trendline formed off the August high from the March peak as opposed to the first closely tied down trendlines that are at the 50 day MVA (8182.87) and 8000. That trendline is now roughly at 8400. Maybe it will stall the Dow a bit when it gets there but the Dow is not the leader in this move. That goes to the S&P 500 and the Nasdaq. The S&P 500 still has to deal with its March/April downtrend channel near 907. The Nasdaq has the March/May down trendline at 1318 ahead of it. Those are key levels to break to move over the downtrend. It is interesting to note that the Dow channel referred to on CNBC could be drawn even higher if it took into account the May highs; it does not, so in theory the downtrend channel could be drawn from there as well leaving yet another hurdle to cross.
What you do is draw the trendlines when a lower high (downtrend) or higher low (uptrend) is made. That typically sets the channel. There will be variations above and below the line; as seen in May's spike, those sharp moves up and down that quickly reverse can be tossed out. Using this method, the August spike in the Dow crossed over the first downtrend line and then quickly corrected as in May. The next high was in early September and that turned at the first down trendline. No doubt there is a down trendline still ahead of the Dow that is formed by three interim spikes on the index. As noted, however, the Dow is not our primary focus as the other two indexes are leading it around and they still have to face their down trendlines.
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