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Monday, October 19, 2009

Dow Jones (DJIA) index chart pattern - Oct 16, '09

The following observation was made in last week's analysis of the Dow Jones (DJIA) index chart pattern:-

'The Dow chart pattern is looking very similar to the European indices, which look to be in buoyant moods. An attempt at crossing the psychological level of 10000 is on the cards.'

The previous high of 9938, made in Sep 23 '09, and the psychological level of 10000 fell by the way side as the Dow chart surged to a new high of 10087 before closing the week just 4 points shy of 10000.

At the time of writing this post, the Dow is hovering near the 10100 mark - barely 250 points away from the 50% Fibonacci retracement level of the entire bear market fall from 14280 (Oct 11 '07) to 6440 (Mar 9 '09). Technically, that would be an important resistance to cross for the bull market to sustain.

Let us have a look at the 3 months bar chart pattern of the Dow Jones (DJIA) index:-

Dow_Oct1609

The previous top of 9938 acted as a support level when the Dow closed last week at 9996. That gives an indication that the index may not only move higher this week, but take out the 10360 (50% Fibonacci retracement) level.

Q309 corporate results declared so far have been quite encouraging for the bulls. While a full-fledged recovery of the economy may not happen till consumer spends start to improve and employment figures start picking up, the worst seems to be behind us and a 1929-like depression has been avoided.

Volumes remain modest and that is a concern. The other concern is the negative divergences in the technical indicators, which are otherwise looking quite positive. All three EMAs are moving up. The slow stochastic has entered the overbought zone. The RSI is getting ready to do so. The MFI has moved up to the 50% level. The MACD is now above the signal line and moving up.

Bottomline? The Dow Jones (DJIA) chart pattern is looking bullish. Keep trailing stop-losses and ride the rally. Watch out for resistance near the 10360 level.

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