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Monday, November 2, 2009

Dow Jones (DJIA) index chart pattern - Oct 30, '09

The Dow Jones (DJIA) index chart pattern failed to reach anywhere close to the 10360 resistance level mentioned in last week's analysis. The weight of the 'reversal week' pattern, the low volumes and negative divergences - all contributed to a 2.5% (259 points) correction for the week.

The volumes increased quite a lot on a down week, coupled with a rise in volatility. The VIX index rose sharply, indicating nervousness among market players. The correction may deepen this week.

A look at the 6 months closing chart pattern of the Dow Jones (DJIA) index will show that the bulls need not throw in the towel just yet:-


The index fall got good support at the 50 day EMA - just as it did earlier in the month. So, the likelihood of a bounce up can't be ruled out. That would provide a good opportunity to sell.

The 20 day EMA has turned down and the 50 day EMA has flattened. The 200 day EMA is still rising. The bulls will hope that the market turns around quickly.

The slow stochastic has dropped below the 50% level. The MACD has fallen below the signal line. The ROC is well into the negative zone. Only the RSI is showing a bit of positive move by bouncing off the 50% level. A further correction to the 9500 level, and below that to the 200 day EMA, is a possibility.

Despite signs of the worst being over and Q3 '09 results apparently confirming that, neither job opportunities nor consumer spending seem to be improving. Even companies are holding more cash - and a greater percentage of assets in cash - than at any time in the past 40 years, as per a recent WSJ article. The economic growth will be severely hampered if spending doesn't pick up soon.

Bottomline? The Dow Jones (DJIA) chart pattern may correct some more. Use any upward bounces to book profits. Start work on your 'buy list'.

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