Slowly, the Dow Jones Industrial Average (DJIA) is checking off each item it needs to do to get back on the bull.  Break back above the neckline, check.  Break the short term resistance line, check.  Set a higher level than the high in June, check.  Break through the moving averages, check.  Surpass the high set in April…not yet.  Looks like that’s the only thing left for the index to do before everyone gets to ride the bull.

Things have patiently turned into the DJIA’s favor as the index is now enjoying a new high after it scared everyone with a possible head and shoulders formation (November 2009 to June 2010) and a possible breakdown to 8415.  Now, current levels are already beyond a danger zone we once saw and it is on its way to retest the high of 11,309.  However, we shouldn’t be too complacent as we saw something bearish.  As the index is rallying, it has also formed what could be a rising wedge.  As of Aug. 12, this pattern has been broken and is now pointing to 10,052.  When that happens, we may have to readjust our sights on the chart once again just to make sure that what is unraveling before us isn’t something bearish on a bigger scale.

The DJIA has broken back below the 100-day & 200 day moving averages at 10,521 & 10,436, respectively.  Only the 65-day moving average is left to serve as its immediate support at 10,263.

The MACD is showing us that the momentum of the index has slowed down and the fast line has already crossed below the slow line.  Looks like we are now going to see a correction coming for the DJIA again.

When the index does go back to 10,052, it would only be a matter of time for it to complete the bigger head & shoulders pattern that are seeing.  The critical point here would be where the neckline is, and that’s at 9,524.  If that is broken, it would be like all hell breaking loose again as we would be seeing a downside target of 8,179.

We’re still a few hundred points away from that disaster area but we should be preparing for the worst while there’s still time.