Dow Jones (DJIA) Index Chart Pattern - Aug 14, '09

During last week's analysis of the Dow Jones (DJIA) index chart pattern, I had surmised that the index may take a breather before deciding on its next course of action, and concluded with the following observation:-

'The Dow Jones (DJIA) index chart pattern is showing some hesitation at the 38.2% Fibonacci retracement level. Could it be a pause before a fall?'

During 4 of the 5 trading days last week, the Dow attempted to cross this important Fibonacci level at around 9450. On Aug 13, '09 it came within a whisker of touching it. But the resistance proved too much, and the index fell a modest 50 points from the previous week.

What is the next move for the Dow? Let us try to infer from the 3 months bar chart pattern of the Dow Jones (DJIA) index:-

Both the 20 day and 50 day EMAs are above the 200 day EMA, and all three EMAs are rising. The Dow is comfortably above all three moving averages. There seems no immediate threat to the bull rally for the time being. But the index seems to be making a bearish rounding-top formation.

The volumes are causing concern again. Tuesday, Aug 11 '09 was the lowest close of the week, but with the highest volume. On Wed and Thurs, the Dow made higher tops, bottoms and closed higher as well, but on decreasing volumes. This is the exact opposite of the volume action in a new bull market.

The RSI has dropped from the overbought zone, though it is above the 50% level. The MFI is at the 50% level, but itching to move down. The slow stochastic has just slipped below the overbought zone with the %K line below the %D. The MACD is falling and seems to be hanging from its signal line.

The technical indicators are definitely looking weaker than the previous week. Coupled with the volume action, a correction may be imminent. The unemployment figures and consumer spending and confidence levels seem to be taking the wind out of the bull sails.

At the time of writing this post, the Dow is down almost 2%. Will it fall more, just as the Asian indices have done earlier in the day? Tough question, but I'm tempted to answer:'Yes'.

Bottomline? The Dow Jones (DJIA) index chart pattern seems to be slipping into a proper correction. Watch out for support at the 8800-8900 zone, which is near the 200 day EMA. A break below may lead to a bigger fall. Time to book profits or stay on the sidelines.