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Monday, May 4, 2009

Dow Jones (DJIA) Index Chart Pattern - May 01, '09

In the previous week's discussion of the Dow Jones (DJIA) Index chart pattern, it appeared that the index was consolidating sideways while the technical indicators were providing bearish overtones.

To get a clearer picture of what the index was up to last week, let us have a look at the 3 months bar chart pattern of the DJIA:-


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

For the entire month of April '09, the Dow has moved sideways, alternatively going above or below the 8000 level. Volumes have been lower than in late Feb '09 and most of Mar '09.

The 200 day EMA has been gradually flattening but still going down. Both the 20 day EMA and 50 day EMA are inching up with the short-term average slightly above the medium-term one. The index has been receiving support from the 20 day EMA from the mid-Mar '09.

The technical indicators are not looking as bearish as they did in the previous week (ending Apr 26, '09). The slow stochastics, which dropped down from the overbought zone has levelled off sideways with an upward bias. The MACD dropped below the signal line but has also levelled off. Both the ROC and RSI are straddling their mid-points.

The Dow Jones (DJIA) index chart pattern seems to be making up its mind which way it wants to go. The index should have corrected by now. But the plethora of bad news from the economy is being ignored. This could lead to another effort at moving up - which will face strong resistance from the 200 day EMA at around the 9000 level.

Bottomline? Short term investors may play for a 10% up move from current levels. Long term investors can start to unload under-performing stocks to generate some cash - which can be redeployed when the DJIA reacts downwards.

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