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Sunday, December 5, 2010

Stock Index Chart Patterns – Dow Jones (DJIA) and FTSE 100 – Dec 03, ‘10

Dow Jones (DJIA) Index Chart

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Last week, the technical indicators of the Dow Jones (DJIA) index chart pattern were hinting at a further correction. A downward break from the triangle and below the 50 day EMA was expected. But I had advised investors to buy the dip because the index was in a bull market.

On the first two days of the week, the Dow dropped below the 50 day EMA on intra-day basis and closed marginally below on Tue. Nov 30 ‘10 – a lower close on a monthly basis. But strong supports from the 50 day EMA and the 11000 level saw a smart upward bounce that took the index well above the rising 20 day EMA and a 2.5% higher weekly close.

The MACD is back in positive territory and touching the signal line. The ROC re-entered the positive zone after several days. The slow stochastic has moved above the 50% level. The RSI has risen to touch its 50% level.

Are happy days here again for the bulls? It may be a good idea to remain a little circumspect. Jobless claims are increasing, foreclosures are accelerating, and inventory is accumulating. Not to forget that the Dow is close to its Nov ‘10 top, and previous tops tend to provide resistance to up moves.

FTSE 100 Index Chart

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The FTSE 100 index chart pattern touched a two month low when it dropped to 5519 intra-day on Nov 30 ‘10 on strong volumes, and closed 2.5% lower on a monthly basis. Just when it seemed that the index would test support from the 200 day EMA, the bulls engineered a smart pull back that took the index above the flat 20 day EMA and back into a bull market.

But the pull back was on decreasing volumes, which is a concern for the bulls. The technical indicators have started to improve but remain weak. The slow stochastic has moved up from the oversold zone but is yet to move above the 50% level. The RSI is also below the 50% level. The MACD is negative and below the signal line. The ROC is hesitating after moving up to the positive zone. The FTSE 100 may consolidate before moving up.

Bottomline? Both the Dow Jones (DJIA) and FTSE 100 index chart patterns are recovering after a bout of correction. The economic recoveries on both sides of the pond have been anaemic so far. Bullish vigour will return after the Nov ‘10 tops are overcome. Time to stay put.

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