Monday, May 18, 2009

Dow Jones (DJIA) Index Chart Pattern - May 15, '09

My advise to investors last week after analysing the Dow Jones (DJIA) index chart pattern was to take some profits off the table as lower levels may be seen soon enough.

The 3 months closing chart pattern of the DJIA index shows that it did indeed move downwards before taking support at its 20 day EMA:-

Dow_May1509

(Please right-click on the image; open it in a new tab or window for a better view.)

All the technical indicators have simultaneously started to confirm a much-needed correction. The volumes have petered off. The slow stochastic has moved down from the overbought zone. The MACD has slipped below its signal line. The ROC has touched its '0' line from above. The RSI has also moved down towards the 50% line.

The index has been well supported by its 20 day EMA since moving above it in early Mar '09. It is possible that another bounce upwards towards the 200 day EMA may be attempted. But the bear market will not be over as long as the index remains below a still falling 200 day EMA.

Fundamental news hasn't been great. Tax collections in the state of California - which would be the 7th largest economy in the world if it was a separate country - fell $1.8 Billion below expectations in Apr '09. April happens to be the state's largest tax collection month.

Home foreclosures are surging in Chicago's suburbs, jumping between 25% and 70% from the fourth quarter in DuPage, Will, McHenry, Lake and Kane counties, according to this report. Job losses, rather than sub-prime mortgages, are the cause of new foreclosure filings.

Retail sales in Apr '09 fell for a second straight month. The fall of 0.4% is less than the fall of 1.3% in Mar '09,  but when you compare it with a fall of 11.4% from Apr '08, then talk about an early economic recovery seem a little far-fetched.

The stock markets have simply been sweeping the bad news under the carpet. But the carpet is now beginning to bulge in different places.

Bottomline? The Dow Jones (DJIA) index chart pattern is showing signs of tiredness after a long upward ride and looks ready for a drop to saner levels. Stay in cash and await better entry opportunities.

No comments: