Dow Jones Industrials

Another week is behind. Following my previous week "DOW Chart" post I may say that my worries abut further slide were confirmed. In that post I mentioned that the stock market is oversold and we may face a reversal soon, yet, I put a few condition that would be nice to meet before a reversal is confirm. One of this condition was McClellan Oscillator crossing zero line and the other one was presence of  negative MVO which would reveal the high volume surge (panic selling) during decline...

So, what do we have now? - We see that both of these conditions are met and we already saw some recovery. By taking a look at the same set of  technical studies I used a week ago I may say that technical analysis based on these indicators is Bullish. If a week ago the indicators show oversold market yet they were negative, then right now they still show oversold market but with Bullish sentiment which makes me believe that the odds are on the side of the recovery. The small exception is the S&P 500 index which is bullish but not as bullish as Nasdaq 100 and DJI indexes.


There are two positive factors for me that I would like to highlight.

a) The same as on October 9-13, 2008 and the same as on November 19-24, 2008 we saw high volume activity in the DJI sector on January 14-16, 2008. I always stated and I repeat myself - I associate high volume surge during decline as panic selling. Yet, because volume is always two side transaction and there is always a buyer for each seller, high volume during the decline tell us that the buyers started to satisfy demands of the panic sellers by buying from them in huge amounts and as a rule that leads to the shift in the supply/demand balance when those who wanted to sell already sold and do not push market down in panic any more.

b) Second positive factor is that in 2008 each time we had huge volume surge and reversal it was lower than the previous support level. This is the first time when we have huge volume activity which is above the previous support level. If we have a reversal now, this is going to be the first reversal which will set new support level that is higher than the previous support (support on November 21, 2008).

I usually do not give any advices, however, for long-term traders, for pension investors there is simple trading strategy which has only one rule: "Buy each time you see huge volume surge during price decline". As I mentioned in October 2008 (read my "Long-Term Investment" post) and as I stated in November 2008 (read my "DJI Analysis" post) I would say again - I consider it is good time to consider... Yet, if you believe that USA economy is going to crash further and never recover back, if you believe that this is only a beginning of the end (there is always a possibility) then you should stay away from any type of investment...

Again, I could be wrong and I'm not an investment advisor, so, do not trust me and do not trust anyone when you invest your money. Do not make any trading decision on what I told above - do your own home work.