Dow Jones Analysis

This is the essence of this blog. More times than not i want to blog my analysis, sometimes it will be followed by my entry positions as well as my target price, stop price and risk profile. Other times it will be an analysis of the Dow Jones Industrial Average (DJI: DIA) because it is one of the best "market thermometers" if you will, or i will analyze Apple (AAPL), not only because it is one of the most promising pieces of equity out there, but also because i have to cover the stock for my investment club (Macglobal) <<--- Check it out !


DOW JONES


Now the Good Stuff


News and Non Technical Drivers
Today October 13, 2011 was a bearish day for the DJI; we saw a 40-point (.35%) decrease in trading price. The index traded below open all day, having an incredibly bearish open, then down trending intraday for a few hours till lunch before seeing a rally to close the below its open. Some major catalysts for the bearish day were: a less than stellar earnings report from JP Morgan Chase, as well as the wake of a possible investigation on the allegations that big banks violated antitrust laws before announcing monthly debit fees.Bank of America (BAC) and JP Morgan Chase lead the index decline with losses of 5.5% and 4.8% respectively

The mid-day rally was sparked on news that Slovakia voted to approve an expanded European Financial Stability Facility giving investors some solace in the troubles in Greece and the EU.

Technical Analysis

Photo from Barchart

We will use the ETF: DIA to analyze the Dow Jones industrial Average. DIA is an ETF that closely tracks and reflects the Dow Jones Industrial Average.
A three-month look at the daily chart of the DIA indicates that the ETF is trading in a range. Over the last 3 months prices have traded between $104 and $116, As of October 12 2011, prices hit the top of the range at approximately $116 as it traded above its 50,20 and 200 EMA.

When prices trade in ranges it is best to use oscillators and envelopes to indicate reversal points, if we are able to pinpoint a precise entry point at the bottom of the range we will expose ourselves to a possible gain of 11% in a short time period.

Bollinger bands indicates a reversal to the bearish side, prices hit the top of the Bollinger band on Oct 12 2011, prices that hit the band indicates a reversal, however, the end of a trend is typically accompanies with higher than average volume, this was not the case in this instance, therefore the reversal was not confirmed by volume.

A look at the stochastic oscillator shows the ETF trading in an overbought area; the %k stochastic line is at 91 and is indicating a bearish reversal. A bearish signal will be indicated when the %K line crosses below the %D line in the overbought region, this is a strong reversal signal.

Today a Doji was formed, indicating indecision in the market, a Doji followed by a bearish day is also a strong indicator of a reversal. Tomorrows trading may dictate weather or not the range continues or there is a break out to the bullish side.
Outlook for tomorrow

Technical signals indicate that tomorrow will be the beginning of a short-term bearish trend until we hit the bottom of the Bollinger band and we will see a reversal.

An anomaly may occur due to an impressive earnings report by Google released after hours today, the euphoria of market participants may drive prices up and bullish in the Dow.

Recommendation
We should sit out of the DIA or in the short term, if action must be taken right now we should short it or buy a contra Dow Jones ETF, The DOG is a stark contrast to the DIA, it is trading at the bottom of the Bollinger band and the stochastic oscillator indicates a bullish cross in the oversold area.