Midday Market Check - The Dow Jones Industrial Average Bounces Back to Flat

We head into the second half of the session with a relatively quiet morning in place. The Dow Jones Industrial Average (DJIA) popped to an early gain of 50 points but that quickly faded to a loss of 33 points. A rebound puts the Dow back to flat and showing a low-to-high range of 83 points.

The sector graph shows a mild upside bias with the Amex Gold Bugs Index (HUI), Natural Gas Index (XNG), and Oil Service HOLDRS (OIH) leading the charge. The SPDR Homebuilders (XHB), Semiconductor HOLDRS (SMH) and Regional Bank HOLDRS (RKH) are also relatively strong. The iShares Treasury Bond (TLT) and AMEX Pharmaceutical Index (DRG) are the only decliners on my list.

Chart Courtesy of Thomson Reuters

Click here for symbol descriptions

As I noted below, and as regular readers are already aware, I have been out of the office for a few days. This leaves me playing catch-up as I work through what I may have missed. My process for that starts with where I left off. The screen capture below is from my last blog post.

Graphs as of 07/01/09

As they stood a week ago, the S&P 500 (SPX) and Russell 2000 (RUT) were challenging resistance. The Nasdaq Composite (COMP) had bounced off near-term support and was flirting with its recent highs. The Dow Jones Industrial Average (DJIA) had also bounced off near-term support but was in no position to challenge its highs. Now let's turn to our attention to the current charts.

Current Charts Charts Courtesy of Thomson Reuters

All it takes is a quick glance to see that the current picture is all about support. The indices have pulled back and are now (precariously) testing near-term levels that have marked areas where buyers have previously stepped in. I know there is also some chatter about the potential head and shoulders pattern forming. For those not familiar with this, I have labeled it on the SPX chart. Matt Phillips, over at the WSJ's MarketBeat blog, offered some various views on this earlier this week.

I am not what would probably be considered a "pure" technician. I do look at charts and I do pay attention to a number of chart patterns. However, I tend to take a loose view. I think of support/resistance in terms of zones rather than tight lines in the sand. I know that there are those who do well with a "tight" approach but that hasn't worked with my personality.

Whether you are following the area near 880 as simple chart support (as I have been) or as part of the head and shoulders pattern, I think it is worth watching what happens here. For two months this, along with 8200 on the Dow, has marked a spot where the bulls have deployed capital. A failure here would mark a change in behavior and suggest that buyers might not have the dry powder to match supply.

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