Dow Jones (DJIA) Index Chart Pattern - Jul 09, '10

The chart pattern of the Dow Jones (DJIA) index pulled back smartly from the previous week's low of 9596. The bulls regrouped during the long weekend and tried to assert their independence from the bears.

The possibility of a bounce up from the 9500 level was mentioned in last week's analysis, as it corresponded with the 38.2% Fibonacci retracement level of the bull rally from the Mar '09 bottom to the Apr '10 peak.

In technical analysis, as in a game of horseshoes, 'close enough' works most of the time. Exact levels, like 'ringers', are hit less often. So, 9596 is treated as 'close enough' to 9500.

What is amazing is how the 200 day EMA comes in to play repeatedly on chart patterns. Last week's smart pull back stopped almost exactly at the 200 day EMA. But it ensured that the 'death cross' of the 50 day EMA below the 200 day EMA was avoided. The technical confirmation of a bear market is still awaited.

A fresh attempt may be initiated by the bulls to rise above the 200 day and 50 day EMAs. The 1 year bar chart pattern of the Dow Jones (DJIA) index shows that the bears are not quite ready to surrender their advantage:

Note that the bearish pattern of lower tops and lower bottoms, which started after the Dow hit the Apr '10 high of 11309, is unchanged. The Jun '10 top of 10627 needs to be conquered before the bear grip is weakened.

Volumes actually declined on the last two days of the week (not shown in the chart) as the Dow inched higher. Expect the bears to put up a good fight in the zone between the 50 day and 200 day EMAs.

The technical indicators have improved but have not turned bullish yet. The MACD has just moved above the signal line, but remains in negative territory. The RSI bounced up from the oversold zone, but is below the 50% level. The slow stochastic has also emerged from its oversold zone and has reached its mid-point.

The fundamental news continues to be a mixed bag. The rate of unemployment is decreasing, but remains the highest since the early 1980s. The Baltic Dry Index has started to drop sharply after moving sideways for a few months. The Euro has regained some of its losses against the Dollar.

Bottomline? The chart pattern of the Dow Jones (DJIA) index is at a technically significant juncture, but the bias is negative. A resumption of the down move can provide shorting opportunities for traders. Investors can continue to wait for lower entry points.