Monday, March 29, 2010

Dow Jones (DJIA) Index Chart Pattern - Mar 26, '10

Last week I had mentioned the possibility of a period of consolidation or a correction because of the high volume reversal day pattern in the Dow Jones (DJIA) index chart at the end of the week. I had also advised investors to stay invested with trailing stop-losses, as this liquidity driven bull rally has defied all bearish technical indications.

A high volume distribution pattern occurred on Thursday - the open and close levels were near the lowest point of the day while the index hit a new high of 10985.  A few more such days and the up move may get reversed - which will actually be good for the long-term sustainability of the bull market.

The Dow closed the week at 10850 - more than a 100 point gain on a weekly basis. The bulls are in complete control and the bears must be thinking about going into hibernation just when the nice weather is around the corner.

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


All three EMAs are moving up with the index above them. Volumes have been decent. The slow stochastic is still in the overbought zone. The RSI is starting to drop below the overbought zone. The MFI is moving sideways at the edge of the overbought zone. The MACD is positive and above the signal line, but has stopped rising.

The last hope for the bears remains the 11100 level - which is the 61.8% Fibonacci retracement level of the entire bear market fall. Coincidentally, the 3% whipsaw leeway for crossing the Jan '10 high of 10767 is 11090. The bulls need to convincingly go past the 11100 level for the bull rally to reach new heights.

Bottomline? The Dow Jones (DJIA) index chart pattern is approaching a technically critical level, so it will be wise to remain cautious. The trick to making money in bull markets is to stay invested but maintain trailing stop-losses - specially near previous tops and technical levels. Buy only after a correction or selectively after the Dow crosses 11100.


EL@'$ said...

Assuming that all the indicators are true, then i would strong recommend ppl to book profit. There is going to a short correction as u can very well infer from the RSI, STOCKHASTIC idicator..

Subhankar said...

You may be right. But this liquidity driven rally has negated most technical signals. So, it may be better to stay invested with trailing stop-losses, and sell if the stop-loss gets hit.