Amazon deals

Monday, September 27, 2010

Stock Index Chart Patterns – Dow Jones (DJIA), FTSE 100 – Sep 24, '10

Dow Jones (DJIA) index chart

Dow_Sep2410

As expected last week, the Dow Jones (DJIA) index chart pattern scared off the last of the bears. On Mon. Sep 20, ‘10, the index climbed above the Aug ‘10 top of 10756 intra-day, before closing just a bit lower. The next day, it touched 10845 and closed higher at 10761.

The Dow slid below the 10756 level on the next two days on profit booking. Bulls came charging back on Fri. Sep 24, ‘10 on hopes of another round of quantitative easing. The index closed the week at 10860 – a weekly gain of more than 250 points (2.4%) – and formed a bullish ‘higher tops and higher bottoms’ pattern.

The 20 day and 50 day EMAs are rising above the 200 day EMA. Volumes were decent, if not strong. The final target for the bulls will be the Apr ‘10 top of 11309. Do the bears have any hope at all? Not much – though the technical indicators are signalling a possible correction in the near term.

The slow stochastic is in the overbought zone. The MACD is positive and above the signal line, but failed to make a higher top. The ROC is also positive, but made a lower top. The RSI fell from the overbought zone to make a lower top as well. These are negative divergences.

The economic news continues to give conflicting indications. Weekly jobless claims rose unexpectedly. Companies are sitting on cash but are wary of new hiring. Existing home sales increased by 7.6%, but the residential real estate market is still in the doldrums, with depressed prices. Warren Buffet thinks the US is still in a recession, and it will be a while before real recovery takes place.

FTSE 100 Index Chart

FTSE_Sep2410

The FTSE 100 index chart pattern closed just above the 5600 level on Mon. Sep 20, ‘10 – its highest close in almost 5 months. The next day it touched a slightly higher top but a lower close. The index dropped down to 5472 intra-day on Thu. Sep 23, ‘10 – where it received good support from the rising 20 day EMA.

The FTSE 100 finally closed 90 points (1.6%) higher on a weekly basis at 5598, and formed a bullish ‘higher tops and higher bottoms’ pattern. Both the 20 day and 50 day EMAs are rising above the 200 day EMA. The Apr ‘10 top of 5834 will be the next target for the bulls.

The technical indicators are bullish, but showing some weakness. The slow stochastic has slipped to the edge of the overbought zone. The MACD is positive and above the signal line, but has dipped a bit. Both the RSI and ROC have made lower tops – indicating negative divergences. The bears may not give up without a fight.

Bottomline? The Dow Jones (DJIA) and FTSE 100 index chart patterns are back in bull territory, even as the economies of the US and UK seems to be recovering in fits and starts. Buy selectively, with strict stop-losses. The April ‘10 peaks need to be overcome before the bulls regain complete control.

No comments: