Market Correction Or Trend Reversal?

Dow Jones Industrial Average closed at 9712 on Friday down 249 points. The moved erased all the gains made on Thursday. The index closed below the uptrend channel and is at dangerous territory. The RSI is now at 45 level. Note that RSI has not fall below 40 level since Jul 09. MACD is showing bearish signal as well with the indicator below its signal line. -DI is set to cross the +DI, this may mark the beginning of the correction that the market has been expecting for some time now.

The next few trading days will be crucial. If the index is able to close within the
uptrend channel, it will be good for the bulls. If the index is not able to gather enough
momentum, then the correction looks set to test the low of 9378 set on 2 Oct 09.

Dow Potential RSI Divergence

Dow closed at 9544 on Friday, down 36 points for the session. For the week, the index rose 39 points.

The technical picture is mixed at this point.

The ADX and DIs indicators are indicating a continuing up trend.

RSI is showing a divergence pattern with the Dow making a high this week but with no confirmation from the RSI indictor. This is bearish and suggests a possible sell down.

The MACD indicator is not able to make a decisive crossover with its signal line and it shows that the bull’s strength is waning.

The moving average is showing a bullish picture with the Dow above its 14, 25 and 50 day moving average.

At this point, the bulls and bears are equally matched and there is no clear evidence of where the market is going. However I will lean more towards the bear's camp.

Dow Updates

Stock market has rallied across the board. The Dow Industrial Average is now above 9000 level. The index is currently at Jan 2009 level.

Technically, the charts are looking better. Just a few weeks ago, there was a possibility of a sell-off based on the head and shoulder pattern. That did not materialize. And when the pattern failed, the market rallied. The reverse seems to be happening. An inverse head and shoulder is now in the picture.

The ADX chart is showing the development of an uptrend, with +DI above –DI and ADX moving towards 30 levels.

MACD is indicating a bullish trend as well with the indicator above its signal line.

RSI is now at overbought levels but it an uptrend situation, market can stay at overbought levels for longer periods.

Based on the monthly charts, the 50% Fibonacci retracement level is at 9176 and 61.8% retracement level is at 9825 level. Market needs to scale these 2 levels for up move to continue.

Let’s see if the market is able to stay above 9000 level next week.

Happy trading!

Dow Industrial Average Potential Head & Shoulder Pattern

Stock market around the world is in corrective phase except for the Shanghai market which went above the 3000 resistance level.

If you look at the technical charts from US, Hong Kong, Singapore etc, the charts are all showing a potential head and shoulder pattern.

For US Dow Industrial Average, the index needs to stay above 8200. If it breaks this level, the right shoulder will be completed and it suggests a target of 7523.

Let’s see if the US market is able to hold on to 8200 level next week.

US Market Update

Dow Jones rebounded from its low of 6440 set on 9 Mar 09 to end at 7278 yesterday. That is about 13% rebound in the span of 2 weeks.

The rebound has taken the index right up to its 50 day moving average. Last night the market was not able to take out the 50 day moving average. That is not a good sign. However, it may turn out to be just a pause before the index attacks its 50 day moving average again. A lot will depend on whether there is any good news to lift the market next week. The index has fallen back into its downtrend channel and if it is not able to go above it's 50 day moving average next week, the downtrend will resume and index may test the low of 6440 again.

The 7392 level now serves as a critical resistance that the index needs to overcome in order for the rally to continue. Support level is at 7041.

This is not the time to establish huge positions. It is best to let the market decides which way to go below going in for the ride up or down.

Dow Update

Dow industrial average has fallen to 1997 levels. It has broken its Nov 07 low of 7392. The picture looks bad at the moment. ADX is at 49 levels and –DI is above +DI. This suggests a continuation of the down trend. MACD indicator has also crossed below its signal line, another bearish indication. The only bright spot is that the RSI indicator has not made a new low yet and divergence of RSI can still occur. For trend to reverse, Dow has to conquer the resistance at 7392 and 9175. In the mean time, the bears have the upper hand.

Dow Jones

The Dow Jones Industrial Average looks to be forming a bottom. The index is near its Nov 07 low of 7392. The trend is still bearish at this point in time. However there are 2 positive signs in the technical charts. Firstly, the weekly MACD indicator is above its signal line and secondly, the weekly RSI seems to be forming a divergence signal. The index needs to break the downtrend channel line in order for a sustainable rally.

Resistance level is at 8446 level and support is at 7392 level.

Dow Support Level

Dow closed at 8424 on Tuesday, up 151 points. The index tested 7947 level, the low established on 13 Nov 08. It managed to rebound and claw back above the 8000 level. Buyers came in only in the last hour of trading.


The index looks to be forming a double bottom and has managed to find buyers whenever it hit below 8000. Next resistance level is at 8835 and support level is at 8085.

US Market

Market players are waiting to see whether US officials will be able to come to an agreement to the bailout package. The market has been plagued by high volatility lately.

The VIX closed at 34.73 on Friday. It spiked to a high of 42.16 on 18 Sep. Assuming that you buy into the Dow Industrial Average when the VIX went above 40 and hold the trade for approximately 1 year, the trading result is as follows:

Entry Date	Entry Level	Exit Date	Exit Level	% Change
1-Sep-98	7583.09	7-Sep-99	11079.08	46.1
4-Sep-98	7737.32	10-Sep-99	11087.00	43.29
8-Sep-98	7964.91	13-Sep-99	11027.40	38.45
11-Sep-98	7583.61	16-Sep-99	10795.77	42.36
14-Sep-98	7936.08	17-Sep-99	10745.38	35.4
1-Oct-98	7749.42	6-Oct-99	10399.77	34.2
2-Oct-98	7631.50	7-Oct-99	10588.34	38.74
5-Oct-98	7760.75	8-Oct-99	10534.52	35.74
6-Oct-98	7733.97	11-Oct-99	10649.76	37.7
7-Oct-98	7754.82	12-Oct-99	10648.81	37.32
8-Oct-98	7734.48	13-Oct-99	10412.31	34.62
9-Oct-98	7806.57	14-Oct-99	10230.89	31.05
12-Oct-98	8038.03	15-Oct-99	10286.61	27.97
13-Oct-98	7982.68	18-Oct-99	10018.45	25.5
14-Oct-98	7925.01	19-Oct-99	10117.54	27.67
18-Sep-01	8922.70	23-Sep-02	7984.77	-10.51
20-Sep-01	8375.72	25-Sep-02	7687.16	-8.22
21-Sep-01	8356.56	26-Sep-02	7844.62	-6.13
24-Sep-01	8242.32	27-Sep-02	7996.01	-2.99
23-Jul-02	7785.55	28-Jul-03	9284.92	19.26
24-Jul-02	7698.46	29-Jul-03	9268.19	20.39
5-Aug-02	8312.92	8-Aug-03	9127.36	9.8
6-Aug-02	8049.93	11-Aug-03	9189.62	14.16
7-Aug-02	8282.25	12-Aug-03	9218.12	11.3
20-Sep-02	7945.93	25-Sep-03	9425.58	18.62
25-Sep-02	7687.16	30-Sep-03	9378.10	22
8-Oct-02	7425.82	13-Oct-03	9675.72	30.3
9-Oct-02	7499.96	14-Oct-03	9763.27	30.18
10-Oct-02	7286.34	15-Oct-03	9824.09	34.83
19-Sep-08	11027.51	Open	Open	1.05

You have a total of 30 trades with 26 ending with a profit.

Dow Update

It was a see-saw trading session on Friday for the US Market. The Dow Industrial Average dropped to a low of 10978 before bouncing to a high of 11239. The Bears attacked the market again bringing the index down to close at 11100.


The index managed to make a higher high and higher low on the 5 minute chart which indicates some strength towards the closed of the session.

The VIX is charging towards the 30 level again, with the indicator hitting a high of 29.44. There are fears in the market again.


The next support for Dow is 10849.

Dow Update

US market was hammered again on Friday. The Dow closed at 11346. From the 5 minute chart of the Dow, we can see that the index was attacked by the Bears from the opening bell.




The only positive sign is a bounce off the lower Bollinger band at around 1.45pm. The index managed to stage a higher low near the 61.8% Fibonacci Re-tracement Level. It is now resting at the lower Bollinger band. The resistance level based on the 5 minute chart is at 11401. If it managed to clear this level, the next resistance is at 11440.

Dow Update

The Bears came out to party this week. The Dow closed at 12209, down 429 points for the week.
The loss on Friday erased the 214 point gain made on Thursday. Jobs number came in worst then expected and high oil prices were the culprit for the Friday decline.



Looking at the weekly chart for the Dow, there should be support at 12155, 11952 and 11508. If the index breaks below 11508, we are looking at possibility of index falling to 10849.

Dow Update

The Dow Industrial Average closed at 12745 points, down 120 points. For the week, the index was down 313 points.

The index is now resting at the lower trend line of the upward price channel. It is also near the 50% Fibonacci Retracement level.

Next week will be a critical week. Let’s hope the index will be able to stage a rebound from current levels.

Dow Inverse Head And Shoulder

Dow broke through 12800 points on Friday boosted by better earnings result from Google which rose about 20%.



The Dow chart is looking like a breakout of an inverse head and shoulder pattern. During the beginning of the week, it looked as if the right shoulder would not be formed. However due to better earning results, the index managed to claw back and break out of the 12800 level which is where the neckline resides (point C).

The price objective based on this pattern is (B-A+C) which gives an objective level of 13950.

Dow Long Term Chart

Dow closed up nearly 400 points. That is amid news of further $19 billion
write-down at UBS and plans at Lehman to raise $4 billion of capital.

The financial stocks did pretty well. Citigroup Inc. shot up 11 percent,
JPMorgan Chase & Co. rose 9 percent, and Lehman surged 18 percent.

Let's look at the long term chart for the Dow Industrial.

The monthly chart shows that the Dow is now very close to the lower end of
the upward channel. It touched the lower trend line on Jan and Mar 2008 and
managed to rebound from there. 11,700 to 11,500 level is now a strong
support line for the Dow.

Looking at the Fibonacci retracement level, Dow is rebounding from to 61.8%
level. If this rebound holds, it will have to clear 14,280 which is the
high attained on Oct 2007. This will give us a target of 16,270.

Dow Greatest Gain Statistics

For those that entered long positions yesterday, congratulations. Dow made the biggest percentage one day gain since 2003. It went up by more than 3%.

Just computed some statistics based on historical Dow readings.

If one were to enter long position at the market open after Dow made a one day gain of greater than 3%, what is the probability of having a gain 5, 10 and 20 trading days later?

For 20 days holding period the probability of win is 57%. 10 days holding period probability of win is 59% and 5 days holding period probability of win is 66%.

DOW, USDJPY And VIX Updates

VIX (Red Line) is now at 27.49. This is not the highest that VIX has attained for the past one year. We have seen the VIX went as high as 37.5 in Aug 2007 and Jan 2008 respectively. Nevertheless, VIX is moving up and that is not a good sign.



The USDJPY (Green Line) is now at 102.83. It is now very close to the lower end of the down trend channel. The good news is USDJPY has rebounded from 101.41 and the hourly chart we are seeing a higher low. If it breaks 103.23, then it will make a higher high. That will be good news for the bulls. However do note that USDJPY is still clearly in a down trend and any rebound will most likely not be sustainable.

The DOW has broken through 12,000 which is a critical support level. It is now at 11,893. That is very near the Jan low of 11,508. Let’s hope that 11,508 can hold water.

DOW And USDJPY Updates

The DOW closed down by 315.79 points. Not good for the bulls. Lets take a look at USDJPY and what is it saying about the DOW.






The rebound in USDJPY that started on 24 Jan 08 could only take it to 108 region. The Dow managed to rebound from 12300 region to 12700 region and the bulls ran out of steam succumbing to the attack of the bears.




The warning signals started to appear on 27 Feb 08 when the 8 day exponential moving average (Red line) fell below the 21 day exponential moving average (Green line). Once that happens, USJPY started to move decisively lower.


The Fibonacci retracement is suggesting a level of 103.48 for the USDJPY which is very close to the lower limit of the downtrend channel.


Based on previous correlation between Dow and USDPY, Dow may be due for a fall below 12000 level.

DOW And VIX

VIX (in Red) has broken down of its symmetrical triangle. It is now at 23 level. There seems to be less fear in US market now compared to a few weeks ago.

The Dow has rebounded and is close to testing the upper limit of its symmetrical triangle as well.


USDPJY is also refusing to go below the 21 day exponential average (in Green).

This is also good for the Dow as a strong USDJPY usually coincides with a rebound in Dow.

Seems like we will see more strength from US this week. But keep your fingers crossed as there are important economic data coming out from US this few days including PPI, Initial Claims and Consumer Confidence.

DOW And VIX

There is a saying in the market that goes like this. When the VIX is high it is time to buy and when the VIX is low it is time to sell.

VIX is a volatility index created by The Chicago Board Options Exchange in 1986. It is an important gauge of market volatility.

VIX measures the implied volatility of SPX options hence it will go up when traders expect volatility to increase.

You can treat the VIX as a fear indicator. When traders are afraid that market will drop sharply, VIX will go up. The reverse is true. When traders are more complacent, thinking that market will continue to go up, VIX will be low.

In the chart, the red line is the VIX and the candlestick chart is the DOW Jones Industrial Index.

You can see that when the VIX spikes up in Aug 07, Nov 07 and Jan 08, the market managed to stage a rebound.

The VIX is now at 25.02, not a high value based on the past year data. It is now forming a symmetrical triangle pattern which means that market can either spike up or down. If the VIX is able to go below 25.02 next week, it will be a good sign and DOW should stage a rebound.

If the VIX goes down to around 20, then it is time to be more cautious.

My personal view is VIX should go below and test the 20 region again.