Monday, July 27, 2009

Dow Jones (DJIA) Index Chart Pattern - Jul 24, '09

Last week's Dow Jones (DJIA) index chart pattern prompted the observation that the technical indicators were pointing to a continuation of the up move in the short term.

The Dow made new highs right through last week and has closed above its long-term moving average for seven consecutive days.

So, have the bulls finally got the better of the bears? Let us have a look at the 3 months closing chart pattern of the Dow Jones (DJIA) index to read the signs from the technical indicators:-


First, the EMAs. The 200 day EMA has stopped falling and is beginning to flatten. The Dow is above it. That meets the first condition of a bull market.

The 20 day EMA is almost touching the 200 day EMA from below, and should be crossing it this week. That will meet the second condition. The 50 day EMA is still a couple of hundred points below the 200 day EMA. When it crosses the long-term average, there will be no further doubt that this is a new bull market.

The RSI is about to enter the overbought zone. The MFI and slow stochastic are firmly in their respective overbought zones. The MACD is strongly positive and well above its signal line. All four indicators are bullish.

It seems that the bears are now on the mat and the referee has started the count. So, is it going to be a sunny summer for the bulls? 

Unfortunately, there is a large dark cloud looming on the horizon that may pour a lot of cold rain on the bull party. Check out the volumes. In May '09, they were strong. In June '09, when the Dow was flirting with its 200 day EMA, the volumes were lower. Now that the index is bounding up and away from its long term average, the volumes are going southwards.

Just like blood pressure has to be maintained for a human being's survival, volume 'pressure' needs to be maintained for an up move to prosper. If the volumes are not strong enough, an up move can continue for a while but will eventually collapse.

The Q2 results declared so far have been a mixed bag. AmEx, Amazon and Microsoft's results were disappointments. For the sake of the bulls, I hope that the bears are not trying to get even by setting up a 'bull trap'.

Bottomline? The Dow Jones (DJIA) index chart pattern is firmly in the control of the bulls. The overbought nature of the markets and low volumes should lead to a correction. Investors should remain patient for a better entry point.


Doctor Universe said...

Your comments are always very informative. I really mean it. So while I am thanking you for your wonderful job I am also making a request for a certain posting.

There are a large number of us for whom the inter-relationship between Bonds/markets/currencies/interest rates is really a lot of Greek. You have enlightened us over the time with MACD , volumes and I keep reading on these issues. Buts its time we need some basic understanding on the above issue to create an enthusiasm to understand economy.You think you could write 1-2 artcles as and when time permits to enlighten us on these issues. I shall be very gratefulto you. Thanks and Best Regards.

Subhankar said...

Appreciate your comments, and thanks for the suggestion.

I've written a couple of blog posts on interest rates and how RBI does money management using CRR, SLR, Repo rate and reverse repo rate.

The links are provided below today's post.