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Monday, April 19, 2010

Dow Jones (DJIA) Index Chart Pattern - Apr 16, '10

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

'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.' 

After two failed efforts on Monday and Tuesday, the Dow finally managed to rise, and close, above the 11100 level on the next two days. It made a new high of 11190 on Thursday. Just when the bulls were getting ready to uncork the bubbly, SEC's fraud charges against Goldman Sachs hit the bulls like a ton of bricks.

The index tested the new high but dropped below the 11000 level where it got support from the rising 20 day EMA. The bulls managed to save the blushes as the index edged above the 11000 level for a marginally higher weekly close.

The high volume down day, coupled with the negative sentiment in the global markets, and the fact that the index is just below the 61.8% Fibonacci retracement level of the bear market fall could well lead to a perfect storm, though the technical indicators in the 6 months bar chart pattern of the Dow Jones (DJIA) index hasn't weakened too much.

Dow_Apr1610 

All three EMAs are moving up, indicating bullishness. But the widening distance between the 50 day and 200 day EMA - now upwards of 500 points - could slow down the bull momentum.

The slow stochastic has just dipped below the overbought zone. The MACD has slipped a little but is touching the signal line. The RSI is almost touching the overbought zone, but made a lower top as the Dow made the new high. The MFI also failed to make a new high and dropped after touching the overbought zone.

Even as the US economy tries to limp back to normal, with March housing starts and industrial production showing an upward tick, unemployment figures are casting a pall of gloom on consumer sentiment - as per this article.

I reiterate what I mentioned last week: 'A decent correction at this stage, if it happens, will be good for the overall technical health of the market.'

Bottomline? The Dow Jones (DJIA) index chart pattern is poised for a much-needed correction. It may not be a bad idea to take some profits off the table and get rid of the duds in your portfolio. Use the likely dip in the market to enter.

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