Stock Trading Predictions & Technical Analysis: Dow Jones

Friday, January 22, 2010

Dow Jones - Breaks Down

Dow Jones - STRONG SELL SIGNAL

The Dow Jones appears to have finally broken its major up trend and now looks to begin its much awaited correction. The Dow Jones fell again sharply today, but more importantly sharply below the 50 day MA. With today's other sharp move down, this created a bearish three black crows pattern. As I pointed out yesterday, a fall below the 50 day MA could send the Dow Jones towards is next support level of 10200, and 10100. In fact the Dow Jones fell as low as 10157 today, losing more than 200 points again. Although it is possible to see the Dow Jones reverse back up next week, the real test is whether or not it can manage to jump back up over the 50 day MA. One possible scenario, is seeing the Dow Jones attempt a recovery and climb back up at the 50 day MA only to fail and fall back again. Basically the 50 day MA is now a resistance level which currently stands around 10450. Another very bearish signal which was given a day or two ago was from Wilder's DMI ADX which is a momentum indicator. The negative DI indicator cross sharply above the positive DI, which indicates a shift in momentum from positive to negative. For now I wouldn't suggest for everyone to start shorting all stocks, but you should start considering shifting from long positions to short positions. For now what looks like the beginning of a major down trend is still young, and for now on my part I have one long and one short position which somewhat hedges my risk, at least for next week. However once the trend become clearer and that the Dow Jones perhaps continues lower I may start taking short positions only.

There have been many stocks that for the past several weeks have started major down trends or have given us SELL SIGNALS. The most obvious sector are the banks which after a small run up, have given us SELL and STRONG SELL SIGNALS. For those of you with respectable profits with your long positions, you should consider starting cashing in your profits and exiting your long positions. Obviously, you should still rely on its individual chart but chances are that it could start falling soon.

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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.