Wall Street took a pounding on Friday and the Dow took the biggest technical beating of all the major indices. The Nasdaq, S&P 500 and Russell 2000 all remain above their 3-Jan lows, but the Dow broke below its 3-Jan low. This shows relative weakness and bodes ill for the Dow.
The Dow Diamonds (DIA), which is the ETF that corresponds to the Dow Jones Industrial Average, broke falling flag resistance with a move above 109 the first week of the year. This signaled a continuation of the November advance, but that signal has been reversed in a major way.
After a ~3% move the first two weeks of January, the Dow Diamonds (DIA) became overbought and ripe for a pullback. The breakout was still valid, but the stock needed to digest gains and work out the overbought condition with a correction or consolidation. Broken resistance at 109 turns into support and there was support at 108 from the October trendline. A strong stock should be able to hold its breakout and trendline (gray box). With Friday's sharp decline the Dow Diamonds (DIA) not only failed to hold its breakout, but also broke support from the January low. This is not the stuff bulls are made of and the Dow is in for a rough ride.
