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Monday, August 2, 2010

Dow Jones (DJIA) Index Chart Pattern - Jul 30, '10

The Dow Jones (DJIA) index chart pattern was showing bullish inclinations observed in my analysis last week. But the lack of volumes indicated that the rally may not sustain, and I had mentioned the following:

‘The Jun ‘10 top of 10627 remains the immediate barrier that the bulls need to overcome.’

On Tue. Jul 27 ‘10, the Dow rose to 10633 intra-day but fell back to close the day at 10538. It made another attempt to clear the Jun ‘10 top on Thu. Jul 29 ‘10 by rising to 10610 but closed the day at 10467. The Dow ended the week about 40 points higher on a weekly basis – but below the 10500 level.

Technically, the Jun ‘10 top has not been overcome, but it may be a matter of just a few more days. The 6 months closing chart pattern of the Dow Jones (DJIA) index seems to suggest as much.

Dow_Jul3010

The 200 day EMA has remained flat for the past couple of months. The 50 day EMA came tantalisingly close to a bearish ‘death cross’ below the 200 day EMA, and has started to move up once again. The 20 day EMA has crossed above the 200 day EMA and is about to move above the 50 day EMA, confirming that the bulls are back in the saddle.

Right through the Jul ‘10 rally, the index has made a bullish pattern of higher tops and bottoms. The lacklustre volumes raise doubts about the Dow’s capability of testing the Apr ‘10 top of 11309. The fall to the Jul ‘10 low of 9596 was a 15% correction. The recent high of 10633 has been a 60.5% retracement of the 1713 points fall.

The 61.8% Fibonacci retracement level of the May-Jun ‘10 correction is at 10655. That partly explains the hesitancy of the Dow to climb convincingly above the 10600 level. The technical indicators remain bullish, but have weakened a bit.

The slow stochastic has slipped down from the overbought zone. The MACD is above the signal line and moving up in positive territory – but it is a lagging indicator. The RSI and MFI have both dropped after reaching their overbought zones, but remain above the 50% level.

Expect the bulls to make another attempt to cross the 10600 level. Bears will point out that the Jul ‘10 Dow rally has formed an ‘ascending wedge’ pattern, from which the likely break will be downwards.

The economic news is far from conducive to fuel a bull rally. The American Trucking Association’s truck tonnage index fell in Jun ‘10 – its first back-to-back monthly contraction since Mar-Apr ‘09. It confirms the beginning of a slowdown, if not a double-dip recession, as per this article.

Bottomline? The chart pattern of the Dow Jones (DJIA) index shows that the bulls are back in command. But there are bearish dark clouds on the horizon. A bit of profit booking, if the Dow attempts to climb further, may be a smart move.

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