Monday, October 5, 2009

Dow Jones (DJIA) Index Chart Pattern - Oct 2, '09

In last week's discussion about the Dow Jones (DJIA) index chart pattern, I had warned about a larger correction due to the break of the up trend line and the weakness in the technical indicators. The concluding remarks were:-

'The Dow Jones (DJIA) index chart pattern looks like it is in the last stage of the bull rally. If you haven't booked profits yet, try to sell when the index attempts a pullback to the trend line.'

To add fuel to the fire, the unemployment figures were worse than the consensus estimate and almost touched double figures. The possibility of a double-dip recession is on the cards.

The 6 months bar chart pattern of the Dow Jones (DJIA) index is looking a lot like its European cousins from across the pond:-

Dow_Oct0209

The expected happened on Sep 28 and 29. A pullback effort by the bulls took the index up to the trend line connecting the Jul '09 and Sep '09 bottoms - providing excellent opportunity to the bears to press their 'sell' buttons.

Four straight down days on good volumes sent the Dow down to its 50 day EMA, where it got good support. The 20 day EMA has turned down but the 200 day EMA is still rising, so there will be some fight back from the bulls.

The technical indicators are pointing to a deeper correction. The RSI, MFI and slow stochastic have dropped sharply below their 50% levels. The MACD is well below the signal line and falling fast.

Bottomline? The Dow Jones (DJIA) index chart pattern is finally going through the much expected correction. Bulls can hope that the correction will be a shallow one. The fundamentals point otherwise and their hopes may be belied.

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