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Monday, February 8, 2010

Dow Jones (DJIA) Index Chart Pattern - Feb 05, '10

Last week's analysis of the Dow Jones (DJIA) index chart pattern was concluded with this comment:

'The bulls managed to avert a bigger sell-off, and may make another attempt to regain control.'

A nice little pull back during the first three days of the week went as far as the intertwined 20 day and 50 day EMAs. The resistance from both the short and medium term moving averages proved too strong.

The Dow fell rapidly on strong volumes on the last two days of the week, before a bout of short covering combined with bargain hunting saw the index manage a weekly close just above the 10000 level.

Let us have a look at the interesting tussle between the bulls and bears in the 3 months bar chart pattern of the Dow Jones (DJIA) index:-


There is no technical significance - merely a psychological one - about the 10000 level. A nice round number that every market player can easily understand.

It is interesting how this round figure has become the battleground for the bulls and bears. The lows on Thursday and Friday pierced the 10000 level, but on both days the Dow managed to close marginally above.

A bearish pattern of lower tops and bottoms have formed. The technical indicators are supporting the weakness in the chart pattern. The 20 day EMA has slipped below the 50 day EMA and the 200 day EMA has stopped rising.

The slow stochastic is in the oversold zone. The MACD is below the signal line and falling in negative territory. The RSI and MFI are both below their 50% levels.

Should the bulls throw in the towel? Not yet. Friday's price action on high volume looks like a 'reversal day' (lower low but a higher close). That could lead to another attempt at a pull back.

Bottomline? The Dow Jones (DJIA) index chart pattern remains in a strong bear grip. The up trend line connecting the July, Nov and Dec '09 lows have been decisively penetrated downwards. Any break of the 200 day EMA can lead to a deeper correction.

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