Stock Trading Predictions & Technical Analysis: Dow Jones

Friday, October 30, 2009

Dow Jones - Back at Critical Level

Dow Jones - BUY SIGNAL FAILED - WAIT

The Dow Jones miserably failed to close higher today and has reversed back towards its 50 day MA. It now seems that my analysis from Wednesday is valid again. The market is showing signs of weakness after such a strong reversal today. What I feared on Wednesday seem more likely again today, but a clean break on Monday towards 9600 and below would trigger a big sell off. Here is again my analysis from Wednesday:

The Dow continued its pullback back today, and should go as low as 9600-9700 before seeing it bounce back off its 50 day MA. However, considering this is the 4th pullback within this trend, I wouldn't be surprised to see the Dow break the trend. What leads me to believe this, is that a few stocks have already started to cross their 50 day MA (e.g.MGM & LVS), and this may be indication for what's to come for the Dow. MGM & LVS are both high beta stocks and move much more quickly than the market, so this could be predictive moves towards the markets direction. Also, we are entering into the flu season, and if the H1N1 were to start spreading and which it seems like it already started, this could a cause some panic and effect the market directly. If the Dow does bounce back up strongly over 9600-9700 this would be a BUY SIGNAL where you could find a lot of good opportunities. If the Dow Jones does bounce back up, I wouldn't be surprised if the Dow hits its lows tomorrow morning before closing up, and possibly indicated a reversal and a continuation of the major uptrend. Another possibility is simply for the Dow to close down around 9600-9700 tomorrow and simply bounce back up on Friday. The worse scenario which would give us a STRONG SELL SIGNAL would be a sharp break below its 50 day MA. I believe any moves at 9500 or below would be enough to confirm it. (Update: A close below 9600 would be enough to confirm it). A breakdown of the Dow Jones, will open opportunities on the short side. Although, if the break does occur you may see an attempt of a bounce back up, but I believe it would start trending down. The Dow's next support levels, assuming a break down are at 9500, 9300, 9100, 8800 and 8600. Basically a break down of the Dow could send it as low as 8600.

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TECHNICAL INDICATORS

BUY SIGNAL: Indicates the possibility of the start of a new up trend or the continuation of the current up trend. This signal may be often given in the early stages of a potential new up trend that was preceded by a down or sideways trend. Such signals do not always succeed and may fail at time.

BUY: Indicates that the current up trend is already in motion and a BUY SIGNAL was already given earlier. A BUY does not necessarily indicate that the stock will continue higher from here, but simply that the stock is trending up. The further into the trend you decide to take a long position, the more risk you have of seeing it reverse back down sooner rather than later.

STRONG BUY SIGNAL: Indicates a stronger, more significant and reliable signal than a BUY SIGNAL which usually has less chance of failing. Such signals do not always succeed and may fail at time.

STRONG BUY: Indicates that the current up trend is already in motion and that STRONG BUY SIGNAL was already given.

SELL SIGNAL: Indicates the possibility of the start of a new down trend or the continuation of the current down trend. This signal may be often given in the early stages of a potential new down trend that was preceded by an up or sideways trend. Such signals do not always succeed and may fail at time.

SELL: Indicates that the current down trend is already in motion and a SELL SIGNAL was already given earlier. A SELL does not necessarily indicate that the stock will continue lower from here, but simply that the stock is trending down. The further into the trend you decide to sell a position, the more risk you have of seeing it reverse back up.

STRONG SELL SIGNAL: Indicates a stronger, more significant and reliable signal than a SELL SIGNAL which usually has less chance of failing. Such signals do not always succeed and may fail at time.

STRONG SELL: Indicates that the current down trend is already in motion and that STRONG SELL SIGNAL was already given.

HOLD: Indicates that traders who already hold this stock, should hold on as long as the trend persists. This signal is usually given during an up trend for which it would be considered too risky to take a long position at this point.

STRONG HOLD: Indicates that the current trend has been in motion for a while and rarely deviated away from the trend. Although the stock may continue higher, there may not be enough potential up side to trigger a BUY SIGNAL. This type of indicator usually means that the stock has very strong support levels which may have been tested but not broken.

WAIT: Usually given during a sideways trend for which we are waiting for a move that would trigger a BUY SIGNAL or SELL SIGNAL. This could also indicate uncertainty and the risk that would be taken if you were to take a long position at the current level. Taking a long position after giving a WAIT indicator is considered a gamble.