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Monday, January 3, 2011

Stock Index Chart Patterns – Dow Jones (DJIA) and FTSE 100 – Dec 31, ‘10

Dow Jones (DJIA) Index Chart


During the week, the chart pattern of the Dow Jones (DJIA) index touched a new intra-day high of 11655 and closed at a new high of 11585 on Wed. Dec. 29 ‘10. In last week’s analysis, I had mentioned that the technical indicators were hinting at a correction or a consolidation.

Despite the new highs, it turned out to be a week of consolidation. Four days in a row, the Dow ventured beyond the 11600 level. But the index failed to stay above. By the end of the week the index closed flat at 11577.

The technical indicators have weakened a bit. The MACD is positive, but made a lower top and has slipped below the signal line. The slow stochastic has started falling and may drop below the overbought zone. The RSI has dipped below the overbought zone. Some more consolidation, if not a correction, is in the offing.

The US economy is beginning to show some real signs of recovery – as the charts in this article seem to suggest. Stay invested, but maintain trailing stop-losses.

FTSE 100 Index Chart


The chart pattern of the FTSE 100 index was looking overbought a week ago and the possibility of a correction or consolidation was mentioned. In a week shortened by the Christmas holidays, the index touched a new intra-day high of 6021, but slipped down below the 6000 level. It then dropped to test support from the rising 20 day EMA before closing just below 5900.

Both the slow stochastic and RSI have fallen sharply from their overbought zones, but are still above their 50% levels. The MACD is positive but has dropped to touch the signal line. Some more correction is likely.

The belt-tightening by the government is beginning to hurt the UK economy, though it will be good for the country in the long term. Many public services are being cut and/or privatised. There is sure to be job losses.

Bottomline? The chart patterns of the Dow Jones (DJIA) and FTSE 100 indices have corrected from their overbought positions. The Dow is looking a bit more resilient. The FTSE 100 is looking slightly weaker. Both indices are above their rising 50 day and 200 day EMAs, so there is no threat to the bull market. Stay invested. 

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