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Monday, November 29, 2010

Stock Index Chart Patterns – Dow Jones (DJIA) and FTSE 100 – Nov 26, ‘10

Dow Jones (DJIA) Index Chart

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In last week’s analysis, I had made the following observation about the Dow Jones (DJIA) chart pattern:

‘The upcoming Thanksgiving holiday weekend could result in the Dow failing to make much headway, as the focus shifts to football and turkey dinner.’

It was an educated guess based on the signals from the technical indictors. The Dow lost about 1% on a weekly basis as it moved up and down between the 20 day and 50 day EMAs without getting anywhere.

The 50 day EMA is still rising and supporting the index, but this consolidation within a triangle pattern after a fall is likely to lead to a downward break below the 50 day EMA. The technical indicators are also supporting a correction. The slow stochastic is below the 50% level. The MACD is barely positive and falling below the signal line. The ROC is negative. The RSI is falling below the 50% level and made a lower bottom – a negative divergence.

No need for panic, as long as the Dow remains above the rising 200 day EMA. In fact, an opportunity to buy the dip.

FTSE 100 Index Chart

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The FTSE 100 index chart pattern continues to make a bearish pattern of lower tops and lower bottoms. The index lost a bit more than 1% on a weekly basis but managed to close on the 50 day EMA. Volumes were the highest on Tue. Nov 23 ‘10, which was a down day.

The technical indicators are bearish. The slow stochastic bounced off the oversold zone, but remains below the 50% level. The MACD is below the signal line and in negative territory. The RSI is below the 50% level. The ROC is rising, but remains in negative zone.

Bottomline? Both the Dow Jones (DJIA) and FTSE 100 index chart patterns are in corrective moods. Use the dip to buy selectively, but maintain stop-losses.

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