Monday, May 25, 2009

Dow Jones (DJIA) Index Chart Pattern - May 22, '09

Last week, the Dow Jones (DJIA) index chart pattern was supported by its 20 day EMA, which led me to comment as follows:-

'The index has been well supported by its 20 day EMA since moving above it in early Mar '09. It is possible that another bounce upwards towards the 200 day EMA may be attempted.'

As if on cue, the DJIA made a feeble effort to move towards its 200 day EMA, only to fall down again. By the end of the week, it was barely hanging on to its short term EMA by its fingertips.

The 3 months bar chart pattern of the Dow Jones index is now looking even weaker than last week:-


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

The 200 day EMA is still falling, albeit more slowly than before. The 20 day EMA has flattened and is just above the 50 day EMA. Volumes peaked on Wednesday - another 'reversal day' with a higher high and a lower close.

The slow stochastic has now reached the 50% line with the %K below the %D line. The MACD is still positive but has slipped below its signal line. The ROC is now in negative zone. The RSI has also touched the 50% line on its way down. All the technical indicators are pointing towards a bigger correction.

The fundamental news continues to be disappointing, as the following statistic will confirm:-

Privately-owned housing starts in April were at a seasonally adjusted annual rate of 458,000. This is 12.8 percent (±13.0%)* below the revised March estimate of 525,000 and is 54.2 percent (±6.0%) below the revised April 2008 rate of 1,001,000.

Bottomline? The Dow Jones (DJIA) index chart pattern leaves little doubt that the 'engineered' rally is fast losing its head of steam. Investors should remain patient a little longer for better buying opportunities. But only if they have a long term view. A lot of short term pain still remains in the financial system.

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