The Dow Jones current trend is looking promising as it is steadily moving upwards above its 20 and 50 day moving averages. The RSI however does indicate that it is overbought and we look to be heading soon towards a health pullback. For now as long as the Dow Jones continues to trade above the 20 day MA, I will remain bullish and maintain my STRONG BUY indicator. Keep in mind that despite my STRONG BUY indicator, this does not imply that you should jump at any stock, but simply that the current trend is strong. I actually expect to see a small pullback within a week or two. Also, despite being a STRONG BUY, you still have to be able to select the right stock as not all stocks are causing this move in the Dow Jones. A pullback towards the 50 day MA would lower my signal to a BUY (I do expect to see this happen at one point during the year, because I don't consider a long term move above the 20 MA to be healthy). The Dow Jones/Market finally seems like it is in a recovery, and ever since breaking the 200 day MA and above critical resistance around 10800, all fears of a double dip recession seem to be gone. The 200 day MA which was a major resistance level just about 4 months ago, is now a strong support level. Other promising factors that seem to indicate the market will continue higher, is that it seems like Gold is now giving signs of weakness and is starting to pullback as I expected and posted a couple days ago. In my opinion, a fall in Gold indicates that investors are now becoming more confident in the market's potential to continue to move higher and improve. As a result Gold is starting to sell off. However, keep in mind that Gold is not out yet and despite being close to giving us a SELL SIGNAL, this has not happened yet and may always be a good asset to hold for the long term; perhaps at a lower price in the near future. Another indicator that confidence is getting back into the market is the fact that we are starting to see stocks like FDO and DLTR trending strongly down. These are the type of stocks that were moving higher during the recession. Overall, I like the current correlations in the market. As the market moves up, Gold and Dollar Store stocks are falling. As the market moves higher, we can expect Crude Oil to continue its move higher as it could likely hit new highs. As the market moves up, we should continue to see however weakness in the US dollar. However if the economy is indeed recovering, the US dollar should move back up in the long term, but perhaps not very soon. Another positive sign is that bank stocks such as BAC and the famous insurance company AIG are moving higher. Basically stocks that were driving the Dow Jones in a downward spiral during the recession are moving the Dow Jones back up as they continue to recover. Overall my outlook for the Dow Jones for the year 2011 is positive based on the current trend. I do expect the Dow Jones to pullback shortly but most likely only towards its 20 day MA currently around 11530. Keep in mind that despite the positive outlook, trends can change very quickly but only a cross back below the 200 day MA would make me bearish. The weekly chart also shows us that the 50 day MA is about to cross above the 200 day MA which would also be very positive for the long term trend and give more strength to the Dow Jones.
No comments:
Post a Comment