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Monday, October 18, 2010

Stock Index Chart Patterns – Dow Jones (DJIA) and FTSE 100 – Oct 15 ‘10

Dow Jones (DJIA) Index Chart

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The Dow Jones (DJIA) index chart pattern closed above the 11000 mark all 5 days of the week, and touched an intra-day high of 11188 on Oct 13 ‘10. Still, the Apr ‘10 top of 11309 has remained elusive. It could be just a matter of time before the Dow reaches a new high. The index has been making a bullish pattern of ‘higher tops and higher bottoms’ since the Jul ‘10 low.

All three EMAs are moving up, with the index above them. Volumes have started to pick up a bit, but the highest volumes was on Friday, which was a ‘down day’. The technical indicators are hinting at a correction. The slow stochastic has dipped from the overbought zone and the %K line has moved below the %D. The MACD is positive and above the signal line, but has stopped rising. Both the RSI and MFI are above their 50% levels, but have made lower tops.

The Dow may be in the process of forming a bullish cup-and-handle pattern that could lead to a stronger rally. This article gives five reasons why the bull party may continue, despite the unexpected rise in unemployment claims. Any drop towards the rising 20 day EMA can be a good opportunity to add.

FTSE 100 Index Chart

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The FTSE 100 index chart pattern is playing ‘follow the leader’ with the Dow. The index closed above the 5700 mark three days in a row, but the low volumes do not inspire much confidence. All three EMAs are moving up with the index above them. The bulls are gradually gaining the upper hand.

All four technical indicators have made lower tops as the FTSE continues to make higher ones. The negative divergences could lead to a correction down towards the 50 day EMA. The slow stochastic has dropped from the overbought zone. The MACD is positive and touching the signal line. The RSI is above the 50% level, but drifting down. The MFI is below the 50% level and falling.

Till the Apr ‘10 top of 5834 is crossed convincingly, the bears will try to fight back. Any drop below the 20 day EMA can be used to add.

Bottomline? The chart patterns of the Dow Jones (DJIA) and FTSE 100 indices are back in bull markets. The stuttering economic recoveries in the USA and UK are keeping bear hopes alive. Buy the dips, but select the stocks (or funds) carefully.

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