Monday, August 23, 2010

Dow Jones (DJIA) Index Chart Pattern – Aug 20, '10

The Dow Jones (DJIA) index chart pattern had been saved by the 200 day EMA from lapsing into a bear market, but in last week’s analysis, I had pointed out that the reprieve could be short-lived. The technical indicators had signalled a continuation of the correction.

Using the support from the 200 day EMA, the bulls attempted a pull back that was resisted by the falling 20 day EMA. The Dow fell below the 200 day EMA and is in danger of reverting to a bear market. The technical confirmation – the 20 day and 50 day EMAs both dropping below the longer-term moving average – is still awaited.

A look at the 3 months closing chart pattern of the Dow Jones (DJIA) index will show that the bulls are walking a tight rope:


The 20 day EMA is almost touching the 50 day EMA, and both moving averages are drifting down, but remain above the 200 day EMA. There is support in the 10100-10200 zone, which can help the bulls to try another pull back.

Volumes were the highest on Thursday’s down day – a sign of distribution. The technical indicators have weakened further and does not support any bullish hopes. But the Dow has defied the bears time and again, so the possibility can’t be ruled out.

The slow stochastic is at the edge of the oversold zone. The MACD is below the signal line and almost at the ‘0’ level. The RSI and MFI are both below their 50% levels. Any rise in the Dow is likely to provide selling opportunities to the bears.

Last week’s spike in the unemployment numbers confirmed the gradual realisation of market players that the economic recovery so far is a jobless one. The official figures are a lot less than the actual unemployment numbers. Spectre of a double-dip recession is looming on the horizon again. Any further money printing may lead to inflation.

Bottomline? The Dow Jones (DJIA) chart pattern has formed a bearish ‘lower top – lower bottom’ pattern and dropped below the 200 day EMA. These are bear market signals. Things may get a bit worse before it can get better. Book profits on rises.


Indianstockpickr said...

Agree Subhankar that the warning signs are here to herald the end of what has been seen March 2009, a bull market rally on the face of a secular DJIA bear market.

Subhankar said...

Thanks for your comments.