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Monday, June 22, 2009

Dow Jones (DJIA) Index Chart Pattern - Jun 19, '09

Last week's discussion about the Dow Jones (DJIA) index chart pattern noted that the technical indicators were not looking too bad but the failure of the DJIA to penetrate its 200 day EMA meant that the Dow had failed to enter a bull market. I had also commented:-

'The short-term average has been a pillar of support ever since the rally began in early Mar '09. Watch this average, as a downward penetration may signal a strong correction.'

The 3 months bar chart pattern of the Dow Jones (DJIA) index shows that for the first time since the rally began in Mar '09, the 20 day EMA failed to lend support to the index:-

Dow_Jun1909

The index fell below the 20 day EMA on Monday but managed to close above it. For the next four trading sessions, despite strong efforts to reclaim its place above the short-term average, it closed below it on all four days.

The volumes have become paltry. The RSI and MFI have moved down to the 50% levels. The slow stochastic fell from the overbought zone to just below the 50% level. The MACD is still positive but well below its signal line. All the technical indicators are signalling a deeper correction.

What a difference a week makes! After ignoring all the bad economic news, increasing unemployment figures and poor housing starts and continuing to rally for more than 3 months, the DJIA index started to fall just when the 'green shoots of recovery' were actually beginning to look like healthy foliage!

So are we now going to see a 'W' shaped recovery after all, or will it be a slow drift sideways to nowhere? Difficult to say at this point, but the rally never managed to turn the bear market into a bull market - like it seems to have done in Brazil, China and India.

Today's (Jun 22, '09) trade so far indicates that the correction is well on its way and the next support from the 50 day EMA may be under threat. If the already flattened 20 day EMA slips below the 50 day EMA, the bears will start to dominate the market again.

Bottomline? Time to take profits off the table. Wait for the correction to run its course. Avoid fresh investments.

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