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Monday, October 25, 2010

Stock Index Chart Patterns – Dow Jones (DJIA) and FTSE 100 – Oct 22 ‘10

Dow Jones (DJIA) Index Chart

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The Dow Jones (DJIA) index chart pattern continues to grind upwards, but seems to be hesitating as it approaches the Apr ‘10 top of 11309. The index dipped towards the rising 20 day EMA on Tue. Oct 19 ‘10 after opening with a downward gap. The gap got filled the next day. On Thu. Oct 21 ‘10, the Dow touched a high of 11250, a level last reached 6 months ago, but closed the week at 11133 – 70 points higher on a weekly basis.

All three EMAs are rising with the index above them. Volumes picked up during the week. But the technical indicators are showing negative divergences. The slow stochastic is moving sideways, just below the overbought zone. The MACD is positive and touching the signal line, but also moving sideways. The RSI and MFI are both above their 50% levels, but have made lower tops while the Dow made higher tops.

Leading economic indicators are positive and showing no signs of a double-dip recession. Corporate earnings are positive as well, but companies are sitting on their cash and not hiring much. Till the Apr ‘10 top is overcome convincingly, the bears will stay in the fight.

FTSE 100 Index Chart

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The FTSE 100 index chart pattern and the Dow chart look like two peas from a pod. The index touched a high of 5787 on Thu. Oct 21 ‘10 – the highest it has reached in 6 months, but closed with a weekly gain of only 38 points. The Apr ‘10 top of 5834 is proving elusive.

All three EMAs are rising with the index above them. Volumes have been nothing to write home about. All four technical indicators are displaying negative divergences – making flat or lower tops as the FTSE moved higher. The notable difference is the MFI, which is below the 50% level due to the low transaction volumes.

The sharpest cuts to public spending since World War II were announced on Wednesday — slashing benefits and cutting public sector jobs with an austerity plan aimed at clearing record debts that swelled during the global financial crisis. Will it work to revive the UK economy? I’m tempted to quote Bob Dylan: “..time will tell just who has fell and who’s been left behind.”

Bottomline? The chart patterns of the Dow Jones (DJIA) and FTSE 100 indices are back in bull markets, but are hesitating just below their Apr ‘10 tops. Threats of a double-dip recession may be receding. But the US and UK economies are far from getting back on real growth tracks. Stay invested. Buy selectively - only if you find compelling value.

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