Friday, April 2, 2010

Near Term Dow Direction

With the second quarter just beginning, I thought I'd take a look at a larger view of the daily Dow going back almost a year (click on the image to get a larger version).

There's a few interesting points I see here:

First, notice how most of the lows are very sharp bounces (green arrows) but most of the highs are extended across several days before a pullback happens (red circles).

Next, note how today's up 70 point action put us back to the top of a now seven day trading range that is now peeling away from the upper Bollinger band.

Also, money flow peaked on March 17th and has been declining since then.

And we've gotten pretty extended away from the 20 MA. (I mislabeled this in the chart as "40" - it really is the 20 though).

What does this all remind you of? Doesn't this look a lot like the action we saw back in the beginning of last August? Notice how the RSI has been indicating an overbought condition for a while now, just as it did back then.

Of course, we can never be sure that history will repeat itself, but I'm starting to think we're getting due sometime soon for a pullback to the 20 MA, which now stands at 10,742. Oddly enough, that number is also exactly the support level established in the January peak.

BTW, notice how the stochastic provides a nice indicator of bottoms but not tops.

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