Monday, May 3, 2010

Dow Jones (DJIA) Index Chart Pattern - Apr 30, '10

To paraphrase an old cliche, bullishness (or bearishness) is in the eyes of the beholder. Certainly, the chart pattern of the Dow Jones (DJIA) index shows almost unbridled bullishness. That is the optimistic view.

Bears may see a few dark clouds on the horizon. Real GDP rose 3.2% on an annualised basis for the first three months of 2010 - but was lower than the 5.6% growth in the previous quarter. Export growth was 5.8% in Q1, but substantially less than the 22.8% growth in the earlier quarter.

Is the nascent economic growth already slowing down, or are the released figures trying to hide more than reveal? The downturn was precipitated by the sub-prime mortgage problems. Is there a prime mortgage problem as well? Will the continued sovereign debt related issues in Europe cast a shadow across the pond?

These questions need to be convincingly answered for the bull rally to continue to steam ahead. Till then, let us take a look at the 6 months bar chart pattern of the Dow Jones (DJIA) index:


The Dow made a new high of 11309 on Monday, Apr 26 '10. But the index closed flat without any follow-up buying, which the sedate volumes confirm. The next day, the index dropped more than 200 points on the highest volumes of the week. Another high volume distribution day?

Note that Monday's high was within the 3% whipsaw leeway above the 11100 level. Technically, the 11100 level has not been convincingly crossed. For the rest of the week, the index tried to stay above the 20 day EMA and the 11100 level - but closed below both the support levels on Friday. A lower close on a weekly basis.

All the three EMAs are moving up, so bulls need not have any immediate worries. The slow stochastic has dropped to the 50% level - the first time it has done so in more than 2 months. The MACD is positive but below the signal line. The RSI is just above the 50% level. The MFI has slipped from the overbought zone. None of the indicators matched the Dow's new high.

Bottomline? The chart pattern of the Dow Jones index is trying to recover from another high volume selling day. There is no sign of the elusive correction - yet. Stay invested but maintain strict stop-losses.

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