Dow Jones Industrial Average Is Getting Frothy

Technical analyst Dave Chojnacki of Street One Financial kicks off the new trading week with a recap of Friday’s bullish action and previews what’s to come this week from a technical perspective.

With the Senate passing the Budget late Thursday night, the stage was set for Tax Reform. The Republicans can now pass Tax Reform without any Democrat votes. This was good news for the market and especially for the Financial sector.

Equities got off to a good start on Friday and got an extra push after Existing Housing sales were slightly better than expected. The major averages moved steadily higher throughout the session, with the Dow Jones Industrial Average (DJIA) and S&P 500 (SPX) making new highs for the 5th straight session.

At the close, the DJIA was up 0.71%, the SPX added 0.5%, and the Nasdaq 100 (NDX) gained 0.27%. Breadth was positive, 1.5 to 1, on above average volume (due mostly to options expiration).

RSI’s moved higher with the DJIA and SPX in overbought territory, at 88.1 and 79.6, respectively. The ARMS Index ended at 0.96, a neutral reading.

For the week, the DJIA was up 1.9%, the SPX gained 0.8%, and the NDX added 0.2%. The VIX added 3.7% for the week, ending at 9.97. Earnings ramp up this week and will impact equities significantly.

Long term, the upside bias continues. All three major indices made new highs again last week. The last major correction in equities was from July 2015 to Feb. 2016, when the SPX fell 14.8%. Since Feb. 2016, the SPX has gained 42.2%, without any significant pullback.

Short term bias continues to the upside as well, with the major averages above key technical levels. The major indices have been in a short term uptrend since Nov. 2016, in fact as the near-term upside bias remains positive.

The DJIA and SPX are becoming frothy, with extremely high RSI’s. The major indices are comfortably above their 20 and 50D moving averages. Near term critical support is now at: DJIA-22219, SPX-2488, NDX-5839.

Europe is higher in early trade Monday, while U.S. Futures are mixed in the premarket. Without any major economic reports due out today, traders will turn their attention to earnings reports and other happenings from major companies.

The SPDR Dow Jones Industrial Average (SI:SPDR) ETF (DIA) rose $0.07 (+0.03%) in premarket trading Monday. Year-to-date, DIA has gained 19.80%, versus a 16.09% rise in the benchmark S&P 500 index during the same period.

DIA currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #4 of 76 ETFs in the Large Cap Value ETFs category.