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Monday, November 8, 2010

Stock Index Chart Patterns – Dow Jones (DJIA) and FTSE 100 – Nov 5, ‘10

Dow Jones (DJIA) Index Chart

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The chart pattern of the Dow Jones (DJIA) index finally cleared the Apr ‘10 top of 11309 and hit an intra-day high of 11506 on Fri. Nov 5 ‘10 before closing the week at a two year high of 11444. Volumes picked up as investors felt energized by the election results, employment news and QE2. The fact that QE1 failed to boost the economy – though it boosted the stock market – was brushed aside by the bulls.

All is not well with the technical indicators, which continue to display negative divergences that were observed two weeks back. The slow stochastic has entered the overbought zone. The MACD is positive and moved above the signal line. The ROC is positive and the RSI is above the 50% level. But all four indicators made lower tops as the Dow made a new high.

The tardy progress of the economy led to a dip in investor bullish sentiment. 151000 new job additions in Oct ‘10 couldn’t reduce the unemployment rate below 9.6%. But increasing pick-up truck sales indicate that the economic recovery is for real.

Investors can wait for a dip towards the rising 20 day EMA before buying.

FTSE 100 Index Chart

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The FTSE 100 index chart pattern followed the Dow in rising above its Apr ‘10 top of 5834 to almost touch the 5900 level before closing the week at a two year high of 5875. All three EMAs are rising with the index, and volumes picked up as bulls finally regained control.

The slow stochastic is just below the overbought zone. The MACD is positive and edged above the signal line. The RSI bounced up after touching the 50% level. The ROC is back in positive territory. These would be treated as bullish signs, but for the fact that all four technical indicators made lower tops as the FTSE 100 reached a new high.

The negative divergences may lead to another dip towards the rising 20 day EMA – which will provide an opportunity to enter.

Bottomline? The chart patterns of the Dow Jones (DJIA) and FTSE 100 indices have cleared their Apr ‘10 tops and are back in bull markets after a 6 months long corrective spell. There is still a lot of ground to cover before the all-time peaks of Oct ‘07 are scaled. Buy the dips, with appropriate stop-losses.

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