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Monday, July 26, 2010

Dow Jones (DJIA) Index Chart Pattern - Jul 23, '10

Last week’s analysis of the chart pattern of the Dow Jones (DJIA) index had the following comment:

‘The bulls may try to re-group and launch another pull back effort.’

The technical indicators were looking quite positive in spite of the sharp dip of the index below the 200 day EMA. So another pull back above the long-term average was no great surprise. In the process, a short-term bullish pattern of higher tops and bottoms have formed.

Trading volumes have been moderate, which indicates lack of buying momentum and puts a question mark on the sustainability of the rally. The Jun ‘10 top of 10627 remains the immediate barrier that the bulls need to overcome.

A look at the 6 months closing chart pattern of the Dow Jones (DJIA) index doesn’t give any clear trend signals yet:

Dow_Jul2310

The 50 day EMA has managed to stay above the 200 day EMA during the corrective period since the Apr ‘10 top. That means, technically the Dow did not enter a bear market. The 20 day EMA is about to move above the 200 day EMA, which is another bullish sign.

The technical indicators are aiding the bulls. The slow stochastic has entered the overbought zone. The RSI is above the 50% level and rising. The MACD is above the signal line and beginning to rise in positive territory. The ROC is positive but has dipped a bit.

The economic indicators are far from bullish. Housing starts have dipped. Unemployment has increased. Corporate results from the bigger companies have been encouraging, but they seem to be sitting on their cash – neither expanding nor hiring.

Bottomline? The chart pattern of the Dow Jones (DJIA) index is trying to extricate itself from a tight bear hug, with a modicum of success. Investors may buy selectively with tight stop-losses. Possibility of a double-dip recession hasn’t been ruled out.

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