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Monday, April 12, 2010

Dow Jones (DJIA) Index Chart Pattern - Apr 9, '10

For the past two weeks, the Dow Jones (DJIA) index chart pattern has been traipsing around the 11000 level, but has not forayed past the technically significant 11100 mark. What is the significance? It is the 61.8% Fibonacci retracement level of the entire bear market fall.

In technical parlance, that is the final hurdle that stands between a new bull market and a bear market rally. Market players know that and therefore, the hesitancy of the bulls is palpable and the repeated attempts to cross above is being resisted by the bears.

Four out of the five trading days last week, the Dow moved above the 11000 level, only to close below it on all 5 days. It hasn't come close to touching the 11100 mark yet. In the process, the technical indicators turned weaker but remain bullish.

A look at the 6 months bar chart pattern of the Dow Jones (DJIA) index shows negative divergence in the technical indicators, which should be a warning to investors about the increasing down side risks:-

Dow_Apr0910 

The Dow made a new intra-day high of 11032 on Friday, Apr 9 '10 but all four technical indicators failed to reach new highs. Even the volumes are giving contrary signals - the down day on Wednesday saw the highest volume during the week and the new high on Friday was formed on a lower volume day. Signs of 'distribution'?

All three EMAs are moving up nicely with the index above them. The bulls have no immediate worries. The slow stochastic is at the edge of the overbought zone and isn't showing any signs of slipping down. The MACD has dropped a bit in the positive territory and is touching the signal line. Both the RSI and MFI have dropped from their respective overbought zones but remain above the 50% level.

It may be worthwhile to take a re-look at the Dow and the technical indicators around the middle of Jan '10 when the index had made its top of 10767. Reminds me of one of Yogi Berra's quotes: it's deja vu all over again!

Bottomline? The Dow Jones (DJIA) index chart pattern continues to hover below the technically important resistance level of 11100. Unless it can go past it convincingly, the bears will remain in the game. A decent correction at this stage, if it happens, will be good for the overall technical health of the market. Stay invested with tight stop-losses, but take some profits home.

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