The Dow Jones Industrial Average has developed a long term up-sloping trading channel. A trading band is created when there are clearly defined horizontal support and resistance levels. Price movements rebound between these levels. Traders buy at the support level and sell at the resistance level. Many trading-band trades are part of a prolonged sideways price movement.
Trading channels are created when the stocks trend upwards and two parallel trend lines can be plotted. These also act as support and resistance levels but the value of these levels changes over time. Traders buy on support and sell on resistance. These trades are more profitable as the resistance level moves upwards over time.
The upper edge of the trading channel is well defined on the weekly chart of the Dow. It starts with the high in July 2011 near 12,650. The second anchor point is the high in March 2012 near 13,250. The current index activity is testing the position of the upper trend line near 14,100.
(Read More: 'Powerful Force' Underpins Stocks )
The lower edge of the trading channel is not so well defined. The first anchor point is in June 2012 near 12,100. The second anchor point is in November 2012 near 12,490. This chart pattern needs a third anchor point to confirm the placement of the lower trend line and to fully confirm the channel trading pattern.