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Monday, December 21, 2009

Dow Jones (DJIA) index chart pattern - Dec 18, '09

Another week of an inconclusive tussle between the bulls and bears is reflected in the chart pattern of the Dow Jones (DJIA) index. The bullishness visible last week was somewhat negated by a strong bear attack.

The weekly close was 140 points lower. More importantly, the close was below the crucial 10360 level (the 50% Fibonacci retracement of the entire bear market fall). Any forays by the index above the 10500 level is being resisted stoutly by the bears.

The Dow has been range bound within a narrow band between 10300 and 10550 - a period of expected consolidation after a long bull rally. Such a continuation pattern is likely to end with the bulls regaining the upper hand, so the Santa Claus rally is not ruled out.

Let us take a look at the 6 months bar chart pattern of the Dow Jones (DJIA) index:-

Dow_Dec1809

The 50 day and 200 day EMA are still moving up, but the 20 day EMA has flattened. Stronger volumes on down days remain a concern. The consolidation may last for a while longer.

The technical indicators are looking weaker than the week before. The slow stochastic is at its 50% level but headed down. The MACD is positive but falling, and remains below the signal line. The ROC is in the negative zone. The RSI is at the 50% level.

The Dow made a new high of 10567 on Dec 14 '09, but none of the technical indicators came even close to a new high. This negative divergence will help the bear cause. Insider selling also indicates bearishness, as per this article.

Bottomline? The Dow Jones (DJIA) chart is in a consolidating mood. Keep a stop-loss at the 10000 level and stay put. Till interest rates are raised, the bull rally is likely to continue.

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