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Monday, August 31, 2009

Dow Jones (DJIA) Index Chart Pattern - Aug 28, '09

The negative divergences from the RSI and MFI in last week's Dow Jones (DJIA) index chart pattern led to a sideways consolidation with a marginally higher weekly close.

The concern about the 'rising wedge' pattern on the longer term chart remains, as the week's trading was confined within the two converging lines of the wedge. The trend line connecting the Mar '09 and July '09 lows are at about the 9000 level. That is where the 50 day EMA is currently. A breach of the 9000 level may change the trend.

The economic scenario hasn't improved greatly. Things are still getting worse more slowly. Banks are failing. GDP growth remains negative. Unemployment is still high, and that is reflected in the steep fall in commercial real estate rentals. Housing foreclosures are mounting. Consumer spending remains weak.

Bull markets are supposed to climb a wall of worries. But the Chinese are not going to be buying as much US debt this time around. Which means the deficit can only be plugged by printing dollars - which will eventually lead to a fall in the value of the dollar.

For now, the party continues as the Dow keeps making new highs. The 3 months bar chart pattern of the Dow Jones (DJIA) index shows that the bulls are not ready to stop their charge:-

Dow_Aug2809

The technicals are looking a little better than last week. All the three EMAs are moving up with the index. Week-on-week volumes have improved.

The RSI and MFI are pretty much where they were last week. The slow stochastic has moved up to touch the overbought zone. The MACD has moved up a bit and touched the signal line.

The big fall in the Shanghai Composite index can slow down the bull rally, if not stop it. There still seems to be a lot of hesitation among investors about this being a new bull market. Unless the level of euphoria increases, the Dow is unlikely to face a big correction.

Bottomline? It seems the Dow Jones (DJIA) index chart pattern wants to rise some more - whether it is logically or economically justifiable or not. This is not the time for fresh investments - even if you are feeling 'left out' of the rally. Maintain existing holdings with tight stop losses.

2 comments:

Brawny M said...

Hello Shubhankar Sir,

You are absolutely right, nothing comes easy.One has to work hard to achieve success in any field. As someone said "you have to work hard for many years to become an overnight star".
My story is not very different I had open a Demat account when market was around 19K when many of my friend said it is very easy to make money here and we all lost our hard earned money. (We made some but lost many).
This time around I am looking for some resources to learn the rules of the game, do my homework before I get into it again. While I was searching I found this blog and my reaction was this is what I was looking for. A honest person ready to help others (who are not so blessed) by sharing his expertise, experience, wisdom.
I have seen so called experts changing colors in no time and taking general public for a ride. Sir, I must say you are among very few people who are transparent and honest while posting your opinion. You explain so many factors to support your claim and I am happy you have restricted yourself from giving so called TIPS.
I am still going through your posts to understand how it works and I am sure to learn a lot. You are doing a great job, keep up the good work going.

Regards,
Brawny M

Subhankar said...

Hi BM

Appreciate your kind words. Please feel free to ask specific questions about any of the blog posts.

I'm thinking about publishing a series of eBooks, so that a lot of the content can be grouped together for easier access and readability.

So stay tuned, and continue your research and homework.