Monday, June 29, 2009

Dow Jones (DJIA) Index Chart Pattern - Jun 26, '09

In last week's discussion about the Dow Jones (DJIA) index chart pattern, I had cautioned about the following bearish possibility:-

'All the technical indicators are signalling a deeper correction ... (which) is well on its way and the next support from the 50 day EMA may be under threat.'

A glance at the 3 months closing chart pattern of the Dow Jones (DJIA) index chart pattern (in blue) will reveal that the bears are beginning to regain control. Please note that the Dow Jones index values are in percentage terms because I have included the 3 months closing chart pattern of the Bovespa (Brazil) index (in red) for comparison.


The DJIA index did break down through the support of the 50 day EMA on Monday and proceeded to close below it for three days in a row. Thursday's sharp up move took the index back above the medium-term moving average, but the 20 day EMA provided resistance to a further move upwards. Friday's lower close was on higher volumes.

The RSI bounced off the 20% level just before entering the oversold zone. The slow stochastic did likewise, but the %K line failed to make a bullish cross above the %D line. The MFI is headed down towards the oversold zone. The MACD is not only below its signal line, but has entered negative territory.

Two indicators are bearish, and two are mildly bullish. Bulls need not get elated. Just take a look at the Bovespa chart. At first glance, it may appear that the Dow is behaving similarly to the Brazilian index. May be a little weaker at worst.

Wrong. The Bovespa index remains in a bull market. It is well above its 200 day EMA, took support from the 50 day EMA during last week's correction and closed above the 20 day EMA. Compare that with the Dow, that never got out of a bear market by failing to close convincingly above the 200 day EMA.

Bottomline? The Dow Jones (DJIA) index chart pattern seems to have had its day (rather, 3 months) in the sun. Much like the USA soccer team in the FIFA Confederations Cup final against Brazil, it has flattered only to deceive. Investors should seriously start looking at the emerging markets, if they wish to get any returns on their investments.

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