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

In last week's analysis of the Dow Jones (DJIA) index chart pattern, I had made the following observations:

'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...The Jun '10 top of 10627 needs to be conquered before the bear grip is weakened.'

The chart pattern pretty much followed the script - managing to move above both the 50 day and 200 day EMAs, but falling short of the Jun '10 top.

The bears took the opportunity to go on a selling spree. The week's trading saw the highest volumes on Friday, as the Dow fell more than 250 points and closed 100 points lower on a weekly basis.

The 6 months closing chart pattern of the Dow Jones (DJIA) index clearly shows that the bearish pattern of lower tops and lower bottoms remains in tact. The bulls may point out that the downward momentum has slowed down.

In spite of Friday's big fall, the technical indicators are not looking too bad. The 50 day EMA has not sunk below the 200 day EMA, keeping bullish hopes alive.

The slow stochastic is above the 50% level, but has turned down. The ROC and RSI are both above their 50% levels. The MACD is marginally positive and above the signal line. The latter is also showing positive divergence - making a higher bottom in Jul '10 as the Dow made a lower one.

The bulls may try to re-group and launch another pull back effort. But the fundamental news continues to be dreary. The Baltic Dry Index and industrial production figures are sliding. As per this article, mortgage applications for home purchases have dropped to a 13 year low, and real unemployment rate is more than double the official rate of under 10%.

The Dow has been trading between 9500 and 10500 for two months, and may continue to do so for some more time. The likely break from this range is downwards. Looks like it may be a slow grind down. Note that of late, the drops below the 200 day EMA are going deeper and the rises above the long-term average are less steep.

Bottomline? The chart pattern of the Dow Jones (DJIA) index is in a bear grip once more. The bulls haven't lost hope, so trading volatility should be a given. Not a market for investors to prosper, but a trader's delight.