Dow Jones (DJIA) Index Chart Pattern - Mar 5, '10

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

'The bulls are likely to make another attempt to push the index above the 10500 level, but their real hurdle will be the Jan 14 '10 top of 10767.'

Factory payrolls were up in the ISM report and the unemployment report came in better than expected along with same store retail sales that climbed by +4.1% year over year.

Bulls used the 'good news' to mount another rally but were thwarted by the bears from crossing the 10500 level during the first four trading days of the week. A final effort on Friday, accompanied by decent volumes took the Dow above the resistance zone of 10500-10550.

The 3 months bar chart pattern of the Dow Jones (DJIA) index remains below the Jan '10 high of 10767, and till the previous high is conquered the bears can not be counted out:-

The Dow is making a pattern of higher tops and bottoms since the Feb '10 low. The 200 day EMA is moving up with the index nearly 1000 points above it. The 20 day EMA has just crossed above the 50 day EMA. These are all good omens for the bulls.

The slow stochastic is inside the overbought zone. The RSI and MFI are both above their 50% levels. The MACD is above the signal line and both have entered positive territory. Again, all bullish signs.

But all is not well with the economy - in spite of the year-long stock market rally. Housing sales and auto sales – the two biggest drivers of the US economy – remain deep in recession, not to say depression – as they have fallen into a trough from which it is hard to see a way out.

Bottomline? The Dow Jones (DJIA) index chart pattern shows that the bulls are beginning to regain control - thanks to the ample liquidity from the economic stimulus. The index may rise some more, but valuations are beginning to look stretched. Investors may buy, but very selectively.