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Monday, September 20, 2010

Dow Jones (DJIA) Index Chart Pattern – Sep 17, '10

In last week’s analysis of the Dow Jones (DJIA) index chart pattern, I had mentioned that the resistance level of 10500 was likely to be overcome soon, though the technical confirmation of the bull market was still awaited.

The index went above the 10600 level on intra-day basis on all five days, and closed above the 10500 level on the first four days of the week. On Friday (Sep 17 ‘10), the Dow finally closed above the 10600 level for a 145 points (1.4%) weekly gain.

The 20 day EMA crossed above the entangled 50 day and 200 day EMAs, and the 50 day EMA has also edged above the longer-term moving average. The Aug ‘10 top of 10756 is less than 150 points (1.5%) away, and may not provide too much resistance. On moving above that level, a bullish ‘higher tops and higher bottoms’ pattern will get formed.

The 3 months bar chart pattern of the Dow Jones (DJIA) index shows that the bulls are slowly but surely regaining the upper hand in spite of the less than encouraging economic recovery:


Note that last week’s volumes recovered some what, though they are far from strong. The technical indicators are looking quite bullish. The slow stochastic and MFI have entered their overbought zones. The RSI is about to follow suit. The MACD is above the signal line, and rising in positive territory.

The Asian markets traded flat today (except India). At the time of writing this post, European indices are trading about 1% higher. The Dow is trading at the 10700 mark – nearly 1% higher. Is risk appetite returning?

The relentless spike in gold’s price seems to indicate otherwise. The economic news continues to be mixed. Actual unemployment claims have been falling steadily and have reached a 2 year low (as per this article). But the widely-followed University of Michigan Consumer Sentiment Index report was the weakest since Aug ‘09.

Bottomline? The chart pattern of the Dow Jones (DJIA) index is back in a bull market. Crossing the Aug ‘10 top of 10756 should scare off the last of the bears. Buy selectively, and maintain strict stop-losses.

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