Monday, April 27, 2009

Dow Jones (DJIA) Index Chart Pattern - Apr 24, '09

There has not been any significant change in the Dow Jones index chart pattern from the previous week. But a closer look at the technical indicators will confirm a sea change in investor perceptions.

The DJIA 6 months closing chart pattern will reveal the differences:-


(Please right-click on the image above and open it in a new tab or window for a better view.)

Two weeks back, I had commented that the DJIA seemed to be treading water around the 8000 level. It has continued to do that throughout the month of Apr '09. If you look at the closing tops since the global rally began in Mar '09, you may be able to perceive that the index is beginning to form a bearish 'rounding top' pattern.

The volumes in Apr '09 are lower than that in Mar '09, when the rally was in its initial stages. The 20 day EMA has crossed above the 50 day EMA but has not been able to pull away from it. The slowing of the upward momentum is quite visible.

Both the short and medium term averages as well as the Dow are well below the 200 day EMA. So we are still in a bear market.

But take a look at the slow stochastics. It has dived down from the over-bought region, confirming that the rally is coming to an end soon. The MACD has started falling and is about to go below its signal line. The ROC and RSI are moving in opposite directions near their midpoints. The 'smart money' seems to be moving out.

As Haresh Soneji of CNBC-TV18 wrote in his weekly article, the fund managers (like Bolton of Fidelity and Mobias of Templeton) are calling a new bull market; the economists, like Stiglitz, Krugman, Roubini are calling it a bear market rally. I'm on the side of the economists because they have no vested interests in a bear or a bull market.

Bottomline? Time to book profits - or hold on to your cash a while longer. Better opportunities to buy will be round the corner.

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