Dow Jones Industry Average (DJIA)

With the newly acquired data base, I am able to look at a few World Indices. DJIA in particular interests me. This is because this chart most o the time able to defy chartists' prediction. Not that I want to conquer this index but it worth much study.

During 2001, the chart has shown a lot of indication that it should be heading for 5,000, it did not happened mainly because o the 2 wars that USA engaged in which propel the index to record high. Was it really a wise choice? On technical term it is not, the whole action on risk a lower lower for DJIA should the it fulfill its Technical formation.



Fig. 1 DJIA weekly chart

Fig 1 shows the technical chart o DJIA. It is very clear by end last year that the chart completed a Double Top (DT) formation and even broke its neckline. The measurement sad to say would bring this giant down to it knee at 1,861.

As always, DJIA intends to again defy nature by breaking the neck line when it is supposed to touches and then continue its journey to Mexico.It has since then hover above its 23% retracement mark. Yet this time the pattern looks letargic and began to taper off. Both weekly Stochasitc and RSI has also shown divergence on their up-cycle, indicating that this Giant is about to U-turn.

At the same time, I did a wave count on the down trend and it came out very interesting. What I did not see is a first wave, instead the wave pattern indicated an A wave since it is only a Zig Zag pattern (abc), it then retraced with another abc upward to complete a B wave and followed by a 5 waves down to complete a C.

I have also just learned another term in Technical Analysis, traders remorse. This is when traders doubt the value of the index or stock price when it breaks the support/resistance level. There will be a retracement and then retest the support/resistance. DJIA is doing just that at this time.

It took 10 years or DJIA to climb to where it is, it took another 10 year or this chart to complete its top formation, it will 10 another 10 years for it to fall ( base on the theory that chart uses 2/3 o the time to climb and 1/3 o the time to fall). Yet it is possible that DJIA will not fulfill its obligation for its DT formation. The wave count seems to support this theory. DJIA has not complete its full movement.

So why did DJIA rebounded at that particular point? After I saved this picture, I added a trend line joining the 1987 and 1990 lows and extended this trend line. The point at which DJIA rebounded recently was where the chart violated the trend line, there was a false break and the trend line supported. However, this already indicate weakness in DJIA. There may yet be one more high for DJIA (or a right shoulder)

For the moment, 7,225 would be the support line for DJIA, while resistance at 9,729 and 11,750. Monthly RSI and Stochastic still support an up-trend. We might still see DJIA survive through for a while. The risk is that the longer it holds, the worse the inal outcome.