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Monday, February 22, 2010

Dow Jones (DJIA) Index Chart Pattern - Feb 19, '10

In last week's analysis of the Dow Jones (DJIA) index chart pattern, I had made the following concluding remarks:

'Bulls don't need to panic yet. Technically, the 10000 level has not been broken on the downside.'

In a holiday-shortened week, the bulls engineered a spirited rally that saw higher tops, higher bottoms and higher closes on all four days of the week. The last three closes were above the 50 day EMA.

So, is it time to yell "tally-ho" because the bull market can be clearly seen? Not quite, as the 3 months bar chart pattern of the Dow Jones (DJIA) index will suggest:-

Dow_Feb1910 

The sharp rally happened on receding volumes, which raises concerns about the sustainability of the up move. The Dow needs to clear its previous top of 10767 (made on Jan 14 '10) before the bulls regain complete control.

The technical indicators have improved over the previous week. The slow stochastic is about to enter the overbought zone. Both the RSI and MFI are above their 50% levels. The MACD is still negative, but has moved up above the signal line.

Expect the bears to put up some resistance around the 10500-10550 area (several tops in late Nov and early Dec '09). Though the 25 basis points discount rate hike by the Fed was taken in its stride by the Dow, things aren't getting better in the economy.

As this article states, the insider selling to buying ratio has 'improved' to 5-to-2 (week ending Feb 12 '10) from 5-to-1 (week ending Jan 15 '10). That means insiders were selling a lot when the Dow peaked, and were still selling more than they were buying during the recent correction.

Bottomline? The Dow Jones (DJIA) index chart pattern is trying to escape from a bear hug. But the bulls aren't out of the woods yet. 'Caution' should be the key word this week. Another leg down in this corrective move is a possibility.

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