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Monday, August 3, 2009

Dow Jones (DJIA) Index Chart Pattern - Jul 31, '09

The global bull market is continuing unabated, and the Dow Jones (DJIA) index chart pattern has joined the party. In last week's analysis, I had written that the volumes were a big concern. The Dow is still moving up on low volumes, and that raises question marks about the durability of this 5 months long rally.

The 3 months closing chart pattern of the Dow Jones (DJIA) index is now showing signs of being overbought:-

Dow_Jul3109

The 20 day EMA is now above the 200 day EMA. The 50 day EMA should follow suit. The 200 day EMA has started to move up, and the Dow is well above it. There should be little doubt that the DJIA is in a bull market.

There are some views that this is a 'cyclical bullish phase' in a bear market, as opposed to a 'secular bull market'. Why get embroiled in semantics? Make the trend your friend. Ride it while it lasts, and maintain trailing stop losses to protect the down side.

The RSI and slow stochastic are both well inside the overbought zones. The MACD is moving higher and is leaving its signal line behind. Only the MFI has dipped below the overbought zone and is showing negative divergence.

The index is about 250 points below the level of a 38.2% Fibonacci retracement of the entire bear market fall from Oct '07 to Mar '09. The 9400-9450 zone may provide resistance that could halt the bull rampage.

Q209 corporate results have been better than expectations. That may have encouraged the bulls. A look at the fine print will reveal that the profits are less due to top line improvement, more a result of judicious cost cutting. That is not a bad thing in a down turn. Except, cost cutting can't substitute higher revenues for any length of time.

What are the economic indicators showing? Things are turning around, albeit slowly. Unemployment is just below double digits. Inflation is negative. So is GDP growth - but less negative than earlier. These are not harbingers of a strong bull market.

Bottomline? This isn't the time to jump in with both feet. The Dow Jones (DJIA) index chart pattern needs to have a healthy correction to achieve greater heights. 

4 comments:

Sujatha said...

What a good news u hv posted sirji

Let the US bull halt first... then all will halt..

Here also almost election, budget, qtr result over... what good news is there for market? except the global cues? If the dow uncle show the downstairs.. all markets will come through lift?

Me too waiting for some more upside to square of my MFs and equities...

PS : Your long term charts are always impressive.

Thanks and regards

vineet said...

Hi Subhankarji,

Always nice reading your blog.

You once had a link to Reuters Technical analysis by Phil Smith undert the section "Useful links".
But I dont see it now. Can you "re-install" the link? If no, then can you pass me the web-link address?
My mail id is vineet8181@gmail.com

Thanks a lot.

Vineet.

Subhankar said...

Thanks, Sujatha.

I post what I observe. Up moves on low volumes will halt soon enough.

Don't wait to squeeze out maximum profits. It is better to sell early to lock in profits. Leave some thing on the table for the buyer!

Subhankar said...

Appreciate your feedback, Vineet.

Reuters link has been restored.