Stock Trading Predictions & Technical Analysis: Dow Jones

Tuesday, February 16, 2010

Dow Jones - Heading Back Up?

Dow Jones - BUY SIGNAL

For the past few trading sessions, the Dow Jones has started to move back up: first of all we had a bullish hammer reversal pattern when the Dow Jones moved as low as around 9800 to only regain most of the losses and close just above 10000. The Dow Jones has since started to move higher by hitting higher lows and higher highs. Finally, on Thursday the Dow Jones broke through its minor down trend and is now trending in a minor upward channel. Today the daily MACD indicator gave us a BUY SIGNAL. Currently the Dow Jones stands at a critical level where it has strong resistance to go through at 10300 and at its 50 day MA just above around 10350. The ultimate test will be to see if the Dow Jones manages to break back up above its 50 day MA while maintaining its level above the 50 day MA. If that does happen we will have another BUY SIGNAL. In the short run if that BUY SIGNAL does occur, we could expect to see the Dow Jones move towards it upper Bollinger Band around 10500. Only if the Dow Jones manages to hit a new 52 week high above 10700 while maintaining the gains for a day or two will I issue a STRONG BUY SIGNAL. Right now, one strong possibility if the Dow Jones moves back up above its 50 day MA is seeing a major sideways trend. The reason for that is based on my observation for which the the upper Bollinger Band is now moving down while the lower Bollinger Band is moving up, which may indicate that the next short term trend may be sideways. Right now I would strongly consider starting to cover short positions, especially if the Dow Jones moves back up above its 50 day MA. Many stocks have started to break through their down trend today and gave us BUY SIGNALS. If the Dow Jones moves towards its 50 day MA and fails to move up above it sharply, we will have a SELL SIGNAL as this will add strength to the current major down trend. Looking at the weekly chart, the Dow Jones' MACD has yet to give us a BUY SIGNAL while the stochastic could give us one by the end of this week if the Dow Jones continues higher.

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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.