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Monday, June 28, 2010

Dow Jones (DJIA) Index Chart Pattern - Jun 25, '10

The bull rally in the Dow Jones (DJIA) index chart pattern came to an abrupt halt at the 50 day EMA. May be it was the proximity to the 50% Fibonacci retracement level of the correction from the Apr '19 top. It could also be because of the negative divergence observed in the RSI in last week's analysis. Or a combination of both the factors.

It is futile to try and assign reasons for a stock market's behaviour. Mr Market moves as per his own logic. The human mind likes to impose pattern and order and cause-and-effect relationships where none may exist. It is more reassuring - plus it makes good copy!

The fact is that the Dow made an about turn and dropped below the 200 day EMA and re-entered a bear market from which it had briefly emerged. The bulls will have the consolation that the psychological as well as long-term support-resistance level of 10000 wasn't breached.

The 6 months closing chart pattern of the Dow Jones (DJIA) index shows a continuation of the bearish 'lower tops-lower bottoms' pattern:

The 20 day EMA remains below the 50 day EMA and both have resumed their fall. Both need to drop below the 200 day EMA to confirm the bear market. Till that happens, the bulls will continue to make sporadic efforts to take the index above the 200 day EMA.

The slow stochastic has fallen from the overbought zone. The MFI is resting on its 50% level. The MACD is above the signal line, but has started to drop in negative territory. The RSI has bounced up a little after touching its 50% level.

The fundamental news continues to be mixed. The ECRI's Weekly leading economic index has signalled a 'recession', as per this article. First quarter GDP growth and consumer activity came in below expectations. However, container freight traffic using railroad and trucks showed improvement.

Bottomline? The chart pattern of the Dow Jones (DJIA) index is near a long-term support and another upward bounce is possible. As long as the index remains below 10700 and above 9700, it is only good for traders who wish to trade the range. Investors should wait for a break below 9700 or a breach of 10700 on the up side to take action.

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