Dow Jones (DJIA) Index Chart Pattern - Sep 25, '09

The previous week's Dow Jones (DJIA) index chart pattern was looking quite bullish. But the technical indicators showed negative divergences, and the fundamentals were not very encouraging either. It led me to conclude with the following comments:-

'The European indices are correcting ... and its effect may be felt across the Atlantic. On two recent occasions, the Dow had sought support from its 20 day EMA, and may do so again.'

The 3 months bar chart pattern of the Dow Jones (DJIA) index seems to have got wind of my post, and decided to humour me by doing exactly what I had surmised:-

The Dow took its cue from the European indices. Another 'reversal day' on Wed, Sep 23 '09 led to a correction that sought support at the 20 day EMA. Down days on 23rd and 24th had higher volumes than the up day on 22nd. The volume action has not been supporting the bull rally for quite some time.

All three EMAs are still moving up, which means the rally may make an attempt at conquering the psychological 10000 mark soon. But there is a piece of bad news for the bulls. The trend line joining the bottoms made on Jul 10 '09 (8058) and Sep 2 '09 (9223) was broken on Thu 24th and Fri 25th. Since this trend line forms the lower line of the 'rising wedge' pattern, a larger correction may be in the offing.

The RSI briefly entered the overbought region before dropping down. The MFI continues its sideways movement above the 50% level. The slow stochastic has slipped down from the overbought zone. The MACD has fallen a bit below the signal line. (Note the lower bottoms in the RSI and slow stochastic as the Dow made higher bottoms in mid-Aug and early-Sep '09.)

Bottomline? The Dow Jones (DJIA) index chart pattern looks like it is in the last stage of the bull rally. If you haven't booked profits yet, try to sell when the index attempts a pullback to the trend line.