Technical Analysis - DOW

When DOW first made its major decline in area marked A, drop was steep and increase in volume was anything but gradual. What it looks like to me is that selling was panic-driven. What happens after seems to be a period where confidence has returned to the market, albeit not with full force.

DOW Weekly

In the period I’ve shaded and labelled “B”, the decline seems more “controlled” and “purposeful”. After each of the first 3 sizable bearish candle comes a pause (deliberation, profit taking, short-covering?), and after that we have 2 long bearish candles in a row. Speaks volume about the “hopelessness” that is felt in the market…. The increase in volume is gradual this time, which suggests to me that selling was the result of more rational assessment of the market than mere fear and panic. It seems people have a better idea of where the US economy is heading – perhaps reality has finally set in that there is something fundamentally very wrong about the “resilience” of the US market.

Personally, what I see when I put volume and price actions together, is that the existing rally is merely a mishmash of profit taking and short covering.

But of course we could attribute the lower volume that accompanies the current rally to traders going on vacations.

In any case, until I start seeing price rising gradually with volume picking up equally gradually, I’m not going to be bullish in the months to come.

What I see on DOW’s weekly chart is a bear flag, and a strong resistance at around 11,895. Failure to break up above resistance in the next few weeks, or a break below the flag’s support with a surge in volume could send DOW tanking.

For the coming week, I’m more bearish than neutral as far as DOW’s concerned. What I see for the week that just passed is a “hanging man” at a price that’s in the region of Fib 38.2 resistance. Any confirmation that price is going down from here will, of course, need confirmation since the candle itself – without taking into account the price level it’s found at - is inherently bullish, given its long lower shadow.

So, I’ll be watching where DOW opens on Aug 25.

DOW daily

Aug 22 has closed above resistance shown in chart above, with unimpressive volume. For Aug 25, I’m going to take the view that it’s likely to be a session of profit-taking. Add to the equation selling pressure from rising oil prices, and we might just see a long bearish candle for Aug 25.

OIL

I can’t resist but have to say this about price of oil: unless global demand goes down, it’s just going to continue to go up. Even at $147 per barrel, oil was apparently still affordable. When oil becomes so costly that countries could no longer offer generous subsidy to their people, most companies could no longer operate, and the average US family could no longer afford to drive or heat up their homes, that’s when we will see demand going down. Until that happens, oil is not likely to stabilize.