CASE STUDY - Dow Jones at a Crossroad ?

The Dow Jones is a bit complicated. As you can see from Chart 1, there are a few things that kept us interested.

1. Notice the Divergence in the MACD since end of OCT 2011 till now

2. Secondly, notice the labels which I mark as 1,2,and 3. Those are the periods where the Dow close below 13,000 points but anyhow it managed to clawed back towards the 13,000 points level. On label 4 is the most recent close of the Dow, which is at 13,038 points. It will be interesting to see whether the Plunge Protection Team will be able to support it above the13,000 points level next week.

3. Notice the MA20 days for the first time since the mid of OCT 2011 close below the MA50 days. It seems like the bear is likely win the tussle against the bull at this moment.
4. RSI is also showing a Divergence since January 2012.

Chart 1. MACD Divergence 



Chart 2. RSI Divergence



The only piece of good news that is holding the market is the Election that is going to be held somewhere this year. Other than that technically DJIA is already in bearish territory long ago. This is what we called an ‘Extended Rally’, meaning the Plunge Protection Team is artificially propping up the index to prevent any attempt for correction by the market.

Folks, this is dangerous, because an extended rally without letting out steam means more pressure will be built up along the way. Fundamentally the US economy is not doing wonders as well. Already 3 quarters below sub-par which is 2% growth. The market is already screaming for a long overdue correction.