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Monday, July 13, 2009

Dow Jones (DJIA) Index Chart Pattern - Jul 10, '09

Last week, the Dow Jones (DJIA) index chart pattern had slipped below all its three moving averages and seemed southbound. I had made the following observation:-

The 20 day EMA has turned down, and once that moves below the 50 day EMA as well, it will be 'game over' for the bulls."

The Dow made a futile effort to move up during the first two days of the week, but the resistance from the 50 day EMA proved to be too strong.

The short term moving average got supported by the 50 day EMA on the way down, keeping the index a whisker away from a full-fledged bear market.

Volumes have tapered off. The slow stochastic is well into the oversold region. The MACD is in the negative zone and well below its signal line. All three indicators are signalling that the down move may gain in strength.

Bulls will try to find some comfort from the RSI and MFI, which are below the 50% levels, but still not in oversold zones. They may try to inject some life back into the index, which will be an opportunity to book profits.

Bottomline? The Dow Jones (DJIA) chart pattern is clearly showing that the 'green shoots' analogy was unsuitable for the state of the economy and the stock market. Looks like this will be a summer of discontent for the bulls.


Anonymous said...

Hello Subhankarji,
Just as you said today it jump 185 points and also there is a head and shoulder pattern on chart (i think so, but u didn't mention about it, is it right or wronge interpretation) which is bearish

Subhankar said...

Yes, Titu.

Good observation about the head-and-shoulders pattern. The pattern is yet to play out fully. The bounce up to the neckline should be followed by a further down move.