Stock Trading Predictions & Technical Analysis: Dow Jones

Friday, February 5, 2010

Dow Jones - In a Major Down Trending Channel

DOW JONES - STRONG SELL

The Dow Jones has fallen once again sharply today, and erased all the week's gains. Like I had mentioned in my previous posts the momentum has shifted from positive to negative since breaking down below the 50 day MA around 10400. Despite seeing two consecutive days of big moves up, it only took one day to erase all the week's gains. The Dow Jones is now clearly trending in major down trending channel. Today, the Dow Jones even fell below the psychological 10000 support level. On a technical point of view there is not much support at 10000, and the closest support level right now is between 9800 and 9900. However, like I mentioned in my earlier posts I think the Dow Jones will head back at a minimum towards its 200 day MA around 9400. Other critical support levels are around 9100, 8600, 8100, and 6400. Before we can hope for any BUY SIGNAL the Dow Jones will have to break back up over its 50 day MA. For now we can expect to see the Dow Jones trend below its 50 day MA as it moves down. Basically we could see a similar pattern to the major up trend we had in 2009, only going in the opposite direction. Again opportunities are now more on the short side. You may see bounces back up here and there, but do not get fooled by these moves as long as the major down trend is intact; you never want to trade against the major trend. It is fair to expect to now see a more volatile market, similar to what we have seen in 2008. As long as the down trend persists, I believe up bounces will just be opportunities to short the market. For those who fear taking short positions and prefer to take long positions, you should look for stocks who are negatively correlated to the market. You have to be very careful when picking your stocks if you intend to take long positions, which I would advise against to. The best option for those who prefer not taking short positions is to simply stay on the sidelines, and cash in whatever long positions you still have, as they are most likely to go down along with the market in general. During uncertain times, it's always best to take a pause and wait for the market to stabilize.

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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.