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Monday, September 13, 2010

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

The bulls returned from the Labor Day holidays with their batteries fully recharged, and shook off the last of the bears from the Dow Jones (DJIA) index chart pattern.

The better-than-expected unemployment news helped the bullish cause. A closer look at the data may reveal that a number of states did not report the actual figures due to the holiday, so the figures were ‘estimated’.

Volumes were on the low side. Friday’s close of 10463 was Dow’s highest close in a month, but on the lowest volumes of the week and barely 15 points higher on a weekly basis.

The 3 months bar chart pattern of the Dow Jones (DJIA) index shows the probable beginning of another bull rally without much volume support:


Tuesday (Sep 6 ‘10) saw the index open near the previous Friday’s close, but drop down to test support from the entangled 50 day and 200 day EMAs. That was a last ditch effort from the bears.

From Wednesday onwards, the Dow rose to test the long-term support-resistance level of 10500 – but closed slightly below it. Note that the 20 day EMA has moved up to touch the 50 day and 200 day EMAs.

The resistance from the 10500 level has been tested three times in quick succession. A fourth test may breach it. (At the time of writing this post, the Dow is trading 50 points above the 10500 level – but needs to close above it for 2-3 days for the breach to be valid.)

The technical indicators are looking bullish. The slow stochastic is about to enter the overbought zone. Both the RSI and MFI are above their 50% levels. The MACD is above the signal line and just turned positive.

Is the bull market here to stay? It would seem so, if you believe the author of this article. Should you throw caution to the wind and start buying? Not till the Aug ‘10 top of 10756 is crossed.

Most Asian and European indices are back in bull territory. The fears of double-dip recession and sovereign defaults are receding to the background. If the Republicans win the November elections, the bulls may start to sing ‘happy days are here again’.

Bottomline? The chart pattern of the Dow Jones (DJIA) index is all set to re-enter the bull market. Only the technical confirmation – the 20 day and 50 day EMAs moving above the 200 day EMA – is awaited. Buy selectively, and maintain strict stop-losses.

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