DOW 11000 DOESN'T HAVE MUCH TECHNICAL SIGNIFICANCE AND PROBABLY WON'T STOP THE DOW'S ADVANCE -- BUT CHART RESISTANCE IS VISIBLE BETWEEN 11200 AND 11600 -- KEEP AN EYE ON UPPER MONTHLY BOLLINGER BAND AS A POTENTIAL UPSIDE TARGET

DOW REACHES 11000... A lot is being made in the media about the ability of the Dow Industrials to reach the 11,000 level which has led to a discussion as to whether or not that number means anything. That's what we'll try to determine here. First of all, a short-term look. The daily bars in Chart 1 show the Dow closing slightly above that "psychological" level yesterday. So far, it hasn't seemed to matter much. The upleg that started during February is still intact with no real signs of a top. The first hint at a pullback would require a close below the rising 20-day moving average (green arrow). More important support is likely at the January high near 10700 (see line). We'll need to look at a longer-range chart, however, to determine if there's any significance to the 11000 level itself.

Chart 1

THERE'S CHART RESISTANCE OVER 11000... A study of the Dow's weekly chart shows several turning points around big round numbers. I said "around" those whole numbers, but not necessarily "at" those big numbers. While conceding that 11K could present some "psychological" resistance, it doesn't appear to have much "chart" significance. The horizontal lines show where chart resistance is more likely. The first possibility is the 62% retracement level near 11272. A second possibility is the early 2008 reaction low near 11600. I would take those numbers as more significant than 11000. It's not that big round numbers don't matter. Chart 2 shows a lot of major turning points around numbers with three zeros (14 in 2007, 13K in early 2008, 7000 in early 2009). It appears, however, that the Dow has a tendency to go a bit beyond them before changing direction. That suggests to me that the 11000 Dow number probably won't stop the Dow's advance. While a decisive move above 11000 by the Dow will probably get cheers from the media, chartists should keep their eyes on more important numbers ranging from 11200 to 11600 (see arrows). There's another reason for keeping an eye on that potential resistance zone having to do with Bollinger bands.

Chart 2

WATCH THE UPPER BOLLINGER BAND... Monthly Bollinger Bands are helpful in spotting long-term support and resistance levels. Chart 3 shows those bands plotted around the Dow over the last five years. The whole idea behind the bands is that prices will usually meet support along the lower band and resistance along the upper one. The reason I'm showing them here is to alert you to the fact that the upper monthly band currently sits at 11563 (blue arrow). That fits right into the potential resistance zone described above and is another place where the Dow may run into some trouble.

Chart 3

WATCH SHORT-TERM SUPPORT AS WELL... Chart 4 takes us from the long-term Dow trend to the very short-term. It plots hourly bar charts for the last twenty days. The reason I'm plotting it is to show that the first significant short-term support is located at 10844 (last Thursday's low). Any decisive close below that level would be a sign that the 11000 level is providing resistance. I don't expect that to happen, but it's always good to know where potential danger points are located.

Chart 4