Excitement builds as the Dow nears record highs

EXCITEMENT BUILDS AS THE DOW NEARS RECORD HIGHS

With the recent market thrust, the Dow Jones Industrial Average DJI has come within striking distance of its record highs.

The Dow ended Thursday at 35,950.89, which is down just 2.31% from its 36,799.65 Jan. 4, 2022 all-time closing high and 2.71% off from its 36,952.65 all-time intraday high a day later.

Among Wall Street's three main indices, the venerable Dow is the closest to record levels. The S&P 500 ended Thursday off 5.21% from its January 2022 record intraday high and the Nasdaq Composite IXIC stands down 12.25% from its November 2021 all-time intraday high.

Excitement is building as the blue-chip average nears its record peaks. However, traders are on guard given a protracted monthly momentum divergence and a long-term resistance line that will offer another major hurdle this month a little less than 2% above the DJI's record intraday high:

The Dow's monthly relative strength index (RSI) ended November at 59.7, which is well shy of even its late-2021 highs.

Additionally, the RSI is now nearing a resistance line from its early-January 2018 record high. That line will be around 65 in December.

Just since the 2018 RSI peak, periods of momentum divergence have preceded significant DJI sell offs.

Additionally, traders are focused on a 94-year log-scale resistance line drawn from the DJI's 1929 high across its Y2k top. This line will be around 37,650 this month, suggesting anything beyond marginal new highs may be a real challenge.

The DJI did exceed this line during a period from early 2021 to early 2022, while then using it as support on numerous occasions. When the DJI peaked in January 2022, it was at most around 7% above it.

After the Dow's decisive close back below it in February 2022, the line then capped strength on a monthly closing basis, leading to much deeper losses.

(Terence Gabriel)

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