DOW May be Trapped inside a Channel

24 January 2008

IntroductionAfter having broken the support of the bearish rising wedge, DOW continued to edge lower, hugging against the lower Bollinger Band. It was in dangerous and critical condition when DOW's ADX rose above 20, where tradings would become more and more volatile. However, DOW was able to resist the selling pressures thus far and rebounced at the end of the last few trading sessions with relatively higher trading volume. It may be because DOW has found another support in an Ascending Channel.

What is an Ascending Channel?
An ascending channel is a set of upward sloping parallel lines that restrict the price/index movement as shown in the attached. Price/index may not always be within the parallel channel lines that show the support and resistance for price/index targets. A breakout above the upper channel line can signal continuation of an upward movement whereas a breakout below the lower channel line can signal a trend change.

Abnormal BehaviourUsually when a stock or index hugs and expands the lower bollinger band with ADX above 20, the tradings will not only be volatile but also brutal with daily falls expected to be more than 1%. However, DOW's behaviour in the last few sessions was quite abnormal. Instead of going down sharply as it should be, DOW was building up its resistances, showing bullish long tailed candlesticks with trading volumes above the norms. Such behaviour usually suggest that a support has been found and this could be the trendline shown blue in the attached.

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This blue line together with the former major resistance line shown red in attached could suggest that DOW could be trapped in an ascending channel.

How about STI and Hang Seng?The following charts suggest that STI and Hang Seng, which often track the movement of DOW, are showing similar resiliency and are trapped also in the ascending channel.

Trading StrategyIf one has no vested interest in stock or equity or index market, it will be good to wait for the confirmation that DOW is:

a) Not breaking the lower channel line;
b) rebouncing from this lower channel line with ADX changing its direction from going up to going down. For those who are vested and are preparing to ride through the "storm", it is good to watch that DOW will not break the final support @ 7,500 or to buy Put Warrants to hedge for the expected losses to be incurred.

1 Feb 2009 Update :
DOW rebounced but failed to break above the 20-day moving average. It is now sitting on a supporting trendline which was inadvertently shown as the lower channel line in the last posting. The updated chart will show that if this supporting trendline is broken, DOW may found support at the lower channel line. It will want to retest the low of 7,997 on 20 Nov 2008 when this lower channel line is broken.

It is quite likely that DOW would rebounce if the Obama's $825 bln stimulus package is passed by the Senate next week.

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19 Feb 2009 Update:

The Obama stimulus package did not help to boost the market; instead, DOW broke away from the rising channel. It dipped 1.19% to a new low of 7,465 which is just below the November 2008's low of 7,552. It would appear that DOW had just formed another bearish flag, which would suggest 5,500 as the next target unless DOW could regain and reclaim its November 2008's low convincingly. DOW's present position is quite similar to the one in June 2008 as shown in the following graph.

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18 April 2009DOW found itself trapped in another channel after Feb 2009 as shown in the attached weekly chart. This time a bullish declining channel. DOW appears to have a bullish look with the following observations:
a) It has just cleared the bullish declining channel;
b) It has recovered the last break of the "bear flag" line (as shown red in attached chart);
c) It has also cleared 20-week average and now is sitting above it;
DOW is believed to be heading for the resistance line, originated from Sept 2008; then, it will test the upper Bollinger line.
However, there are dangers signs around, signified by the falling 50 and 100 week averages. The 100-week average, which is about the cut under the 200-week average, appears to have a dangerous look.
The COPPOCK indicator suggested that the present market is still a trader's market and not a start of a bull market where long term investor can safely enter the market.
Disclaimer:
Information here is for sharing and learning. It is not intended to give any advice on any stock or movement or trend of any index. If a price or movement of a stock/index is given, it is only intended for illustration. The reader shall verify the information given here before using them.

DOW in Dangerous But Not Critical Condition

15 January 2008

IntroductionLast night, DOW lose about 250 points or 3% and fell from 8,448 to about 8,200. DOW is now in dangerous but not in critical condition. This is because the ADX has just reversed its direction but stayed below 20.


What's ADX?ADX is a acronym for Directional Movement Index, which is another very important index in Technical Analysis. ADX will tell the direction in the movement of a stock or index. When ADX is moving down and suddenly reversing its direction to move up or vice versa, it signifies a directional change in the movement of stock or index. One would expect the stock/index to move up or down depending on the changes. If ADX moves above 20, it usually signifies an accelerated movement and when it it moves above 30, the acceleration will intensify.

The following Chart A will illustrate with red circle identifying the up movement and blue circle identifying the down movement.


Why Dangerous and Not Critical?Earlier on, DOW formed many shapes and patterns. It finally selected the bearish one which is the rising wedge pattern. It then broke the supporting trendline that has been restricting DOW's movement since November 2008. Subsequently, it broke the 20-day as well the 50-day supports and presently hugs the lower Bollinger band with ADX changing its direction as shown in attached Chart B. This put DOW in a very dangerous position. However, the Bollinger band has only been expanded slightly and ADX is below the 20 critical line with the 10-day Stochastic chart in oversold region, these indications suggested that DOW was not be in a critical condition.

Trading Strategy?If one has no vested interest in stock or equity or index market, it will be good to stay sideline until the situation has improved. For those with vested interest, it would be advisable to set targets for loss cutting or prepare to buy Put Warrants to hedge or compensate for the expected losses to be incurred should there be a serious downfall in stock market. Invariably, there will investors who would want to take the chance to short sell the market or go bargain hunting during this period.

Disclaimer:
Information here is for sharing and learning. It is not intended to give any advice on any stock or movement or trend of any index. If a price or movment of a stock/index is given, it is only intended for illustration. The reader shall verify the information given here before using them.

DOW Has Formed Many Shapes and Patterns

2 January 2009

Introduction
DOW re-bounced from its low of 7,552 on 20 Nov 2008 to the present high of 9,034 on 2 Jan 2009. It has gained about 1,500 points or 20% over a period of slightly over 1 month. It has moved up against the odd of many bad economic news.

Where will it move from here?
According to Chinese Zodiac, the next Chinese New Year is an OX year. It was speculated that years of OX were never a good year for equity or stock market. This has proven to be true for year 1973, 1985 and 1997 when markets plunged during these dreadful years.

Will it be true also this year?
Charts are not able to tell much about the distant future. However, the chart of Elliot Wave indicates that DOW is presently forming the "ABC waves". The Elliot Wave chart suggested that DOW could have just completed forming its downward "A wave" and presently, it could be forming the "B wave" as shown in the attached monthly chart:


The above chart also shows that DOW tested the 200 MA support line recently. If this important support line is broken, then one would expect DOW to extend its wave A movement and seek lower lows.

Can the Charts Read the Near Future Movement?
The following charts will show that DOW is presently negotiating a re-bounce and is forming all sort of shapes and patterns. It gave conflicting signals about its near future movements.

Although most of the signals are positive ones, there is one worrying signal that indicates that DOW will continue its decline as shown in the attached chart:

doubleclick for enlarged view

The above chart shows that DOW has formed 4 different shapes and patterns. They are:
a) The bottom Head and Shoulder pattern (bullish);
b) The ascending triangle(bullish);
c) The symmetrical triangle(bullish);
d) The rising wedge(bearish).

It is good also to note that:
a) DOW had broken the resistances of some of these shapes and patterns;
b) Its 20-day MA was about to cross over the 50-day MA;
c) The trading volume was low when DOW broke the resistances.

Isn't That Bullish?
By popular count, one can say that DOW is bullish presently; however, the trading volumes were quite low when DOW broke the resistances plus there were many bad news, one could not conclude that DOW will continue its way up; on the contrary, DOW may just turn bearish and continue its way down.

How's STI Doing?
With the 68 point gained last Friday, STI has broken the symmetrical triangle that has restricted the STI's movement over the past 3 months; again, this significant event was not supported by very heavy trading volume. It could mean that the investors were still doubtful about the STI's future movement.

Trading Strategy
Unless there is a trading breakout supported by heavy trading volume in the next few sessions, it is likely that STI or DOW will remain range bounced with a sideway movement or may even dip from the presently level.

It is therefore wise to remain cautiously optimistic until the 20-day MA can cross over the 50-day MA convincingly or when there is a trading breakouts supported by heavier trading volume.

Disclaimer:
Information here is for sharing and learning. It is not intended to give any advice on any stock or movement or trend of any index. If a price or movment of a stock/index is given, it is only intended for illustration. The reader shall verify the information given here before using them.