Monday, August 30, 2010

Dow Jones (DJIA) Index Chart Pattern – Aug 27, '10

The chart pattern of the Dow Jones (DJIA) index behaved like a drowning person last week – desperate to clutch at whatever index level seemed to be floating by.

On Monday, Aug 23, ‘10 it rose all the way to the 200 day EMA intra-day, tried to hang on but fell back and closed lower at 10174. That was the highest close for the week, on the lowest volumes. I had mentioned about the support zone between 10100 – 10200, but the bulls failed to regroup for a pullback.

The next day, the Dow dropped to 10040 on higher volumes. On Thursday, Aug 26, ‘10, the index closed below the psychological 10000 level. Friday’s sharp recovery was probably due to some bottom fishing aided by short covering. The index managed to close at 10150 – bang in the middle of the support zone, which is now likely to turn into a resistance zone.

The 3 months closing chart pattern of the Dow Jones (DJIA) index chart pattern gives a clear indication that the bears are in no mood to relent, despite Friday’s buying:


The 20 day EMA has slipped below both the 50 day and 200 day EMAs. The 50 day EMA is resting on the 200 day EMA. If it falls below the long-term moving average as well, the bear market will be technically confirmed. As long as the Jul 1, ‘10 low of 9596 holds, the bulls will have some hope.

The technical indicators are not giving any encouragement to the bulls. The slow stochastic and the RSI are in their oversold zones. The MACD is negative and below the signal line. The MFI is below the 50% level.

The fundamental news isn’t any better. GDP growth was revised downwards to a pitiful 1.6%. Unemployment is up. Home sales are down. All that Mr Bernanke promised near the foot of the picturesque Grand Tetons was that he will provide more stimulus if the economy gets much worse. That obviously means that the ‘substantial progress’ he mentioned last year has remained a dream.

Bottomline? The Dow Jones (DJIA) index chart pattern is exhibiting a bearish ‘lower tops – lower bottoms’ pattern. Sell on rises.

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