Archive through October 20, 2004

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alann

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Tuesday, October 19, 2004 - 07:55 am:

I start this thread to hopefully generate some interest in getting folks involved the the technical analysis of the Dow Jones Industrial Average. I encourage POST of both short term and longer term TA. It is my hope that this thread will not digress but will stick with the intent of the subject "Technical Analysis of the DJIA". I also encourage your inputs on Entry and Exit signals. For those who are interested in the Fundamental Analysis of the DJIA I would hope that someone would start a similar thread.

To kick off this tread I offer my TA on the current status of the DJIA.

Current Market Condition of the DJIA -- The bull trend of the DJIA has ended and the DJIA is currently trendless. We must wait until the ADX crosses above either the +DI or the -DI to determine the beginning of the next trend.

Weekly Dow Chart

I use numbered flags on the chart in keeping with the convention of Collin Twiggs in my following analysis:

1. -DI has crossed above +DI: Price bar is the pivot point.
2. Price bar closed below the pivot point. Bearish.
3. +DI has crossed above -DI: Price bar is the pivot point.
4. Price bar did not close above the high of the pivot point. Bearish.
5. +DI has crossed above -DI: Price bar is the pivot point.
6. Price bar did not close above the high of the pivot point. Bearish.
7. Price bar did not close above the high of the pivot point. Bearish.
8. ADX is below both +DI and -DI indicating a trendless market. The ADX is also starting to tick up.

Thus the ADX indicates that the DJIA is trendless. Flag #1 on the chart identifies the week in which the previous bull market trend came to an end.

Bottom line: The bull trend of the DJIA has ended and the DJIA is currently trendless. The fact that Flag #1 indicates bearishness which goes unchecked by flags 3 and 5 and the downward slope of the trend channel could suggest that the next leg of the market could be a bear market and not a continuation of the previous bull market that the bullish flag suggests (If you read it as a bullish flag). However, since we cannot predict the future but can only see possibilities by reading the chart and indicators what we do know is that the current leg of the DJIA is trendless. We must wait until the ADX crosses above either the +DI or the -DI to determine the beginning of the next trend. If however, the ADX continues to tick up and cross the +DI line and if the -DI line stays above the +DI line we will have witnesses the birth of a new bear market for the DJIA, but we will have to give this market a little more time to see how it developes.

Alann,

I cannot predict the future I can only follow the trend. Why? Because the trend is my friend.

colin_twiggs

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Tuesday, October 19, 2004 - 08:16 am:

Alann,

The chart displayed is for DIA (the Diamonds Trust). Here is the chart for DJIAA - very similar.

Regards
Colin

djiaa_DM

chance

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Tuesday, October 19, 2004 - 08:37 am:

Hi Alann,

The DJIA looks to me, to be in a downtrend, not trendless, in my opinion.

I use a change of trend combination as defined Rocky 11 on this forum.
It consists of:
1 a trendline breach
2 a ma crossover (a la snifter)
3 a series of lower highs and lower lows - in a downtrend

come home Rocky, all is forgiven !

Regards chance

hilarius

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Tuesday, October 19, 2004 - 09:41 am:

Hello Alann

I tend to concur with Brother Chance. Your cerise coloured moving average is making lower highs and lower lows and the straight line envelope is pointing downwards

Isn't that a trend?

Hilarius

I come in peace to share my thoughts and to shine my candle light on possible long term opportunities

daz

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Tuesday, October 19, 2004 - 10:18 am:

Today's Nightly Business Report broadcast in Australia on SBS TV 12:30-1:00pm AEST Tues 19 OCT 04 is scheduled to interview Sam Weinstein. Also check transcripts on their website nbr.com for 18 Oct 2004.

mosaic1996

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Tuesday, October 19, 2004 - 12:08 pm:

Equity markets trend upwards over time.

Markets tend to oscillate around fair value driven by fear and greed.

The American market went on a bit of a irrational run during the 1990's, and came back down to earth with a thud. This exceptional run has really distorted any long-term analysis of the US markets.

So we are trying to determine which way the pendulum is
swinging at the moment, and how much momentum it has/will have.

My gut feel looking at the DJIA and SPX charts is that it is now in an upswing, but is being held back but something.

Now my take on the current environmentals behind the chart are as follows:
a) underlying upswing is being driven harder than normal by China (and other developing countries) growth. This growth will drag the rest of the world with it.
b) market subdued by uncertainty surrounding elections (USA and a middle east country that I can't name on Incredible Charts).

If we don't have a significant pre-election terrorist attack (e.g., dirty bomb) in the USA, then the markets could start to move a bit.

And once/if the Iraki elections are out of the way in January, the US markets are likely to really take off driven by (currently) scared money coming from the sidelines. There is a lot of money on the sidelines, and it doesn't take much to upset the supply-demand balance at any particular price point.

Anyway, my prediction is a new DOW record, say 12,000+, by mid-March!

And a couple of charts with somewhat arbitrary positioned underlying longterm growth trendlines.

I prefer the SPX rather than the DJIA as it is a much broader index. DJIA was also stuffed up a bit by the inclusion of MSFT and INT at close to their peak price.

Cheers,
Mosaic

rederob

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Tuesday, October 19, 2004 - 07:55 pm:

Alann
Given there has been a slight digression from the T/A side, I'll toss in the DOW's correlation with Morgan Stanley Consumer Index from work done by Tim Wood:

Aside from a close correlation with the DOW , Tim notes that when most recent data is closely reviewed, the Index is due for a marked decline (high probability).
Accordingly, any near term rally of the DOW could be very short lived.

alann

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Tuesday, October 19, 2004 - 08:24 pm:

Thanks ALL for your TA's.

Chance -- I value your TA on the DOW and thank you for it. I do have one question. The only reason I did not look at it as a downtrend was because of the possibility that it could be a Continuation Flag (see IncredibleCharts/Chart Patterns/Flags and Pennants). This is why I used the Directional Movement System to identify the trend. I was wondering why you chose to discount the pattern as a possible Flag. Not trying to put you on the defensive as I would never do that to anyone. I would just like to further understand your TA. Thanks!

Mosaic1996 -- Thanks for the long term TA and for the forecast. One question: Is your forecast of 12,000 for the DOW based upon the extension of the trendline on your chart, or is it based on some other analysis? If by some other analysis, could you elaborate. Thanks!

Again thanks everyone for your inputs and I value them. And, thank you Collin for providing this forum and IC.

Alann,

I cannot predict the future I can only follow the trend. Why? Because the trend is my friend.

alann

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Tuesday, October 19, 2004 - 08:36 pm:

Thanks rederob for your input. Sorry, didn't see your POST. Guess you snuck it in there while I was writing, editing and posting my response above.

Question: Do you have a link to Tim Wood's work? If not, then can you further explain why Tim Wood believes that there is a high probability of a market decline? Thanks!

Alann,

I cannot predict the future I can only follow the trend. Why? Because the trend is my friend.

perler59

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Tuesday, October 19, 2004 - 08:54 pm:

So! Does the dog (Consumer Index) wag the tail (DJIA) or does the tail wag the dog?

I can NOT control the markets, so I MUST control myself.

ken

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Tuesday, October 19, 2004 - 08:58 pm:

Hello all,

My view is that we have had a lower low (Oct 2002) and a lower high (Feb 2004), so we are in a downtrend until the peak of January 2000 is surpassed.

Elliottwave.com has the Dow and other US markets in the start of an extended bear market eventually going down to about 400 on the Dow - the level at the Great Depression. This is obviously over many years - look at how the Dow relates to the Nikkei since 1989. After reading about the world oil depletion on a recent post, I think I can see how it will happen.

10 year DJIA

chance

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Tuesday, October 19, 2004 - 09:10 pm:

Alann,

Am happy to further explain my reasoning.
I don't use flags, pennants or most of that sort of pattern recognition, mainly because from what I have read they don't have a very high success rate.

I wouldn't use an indicator like the directional movement system to identify the trend for two reasons.
Firstly, because if you change the time period of the indicator from its default setting of 14 to say 10 you will get a different result/indication.
Secondly because I prefer to interpret the price (or in this case index) action directly rather than second hand through another indicator.

Regards chance

mosaic1996

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Tuesday, October 19, 2004 - 09:29 pm:

Hi Alann,

Firstly, I will post another chart that shows where I see the latest medium-term up trend to gauge the likely gradient or rate of return should the uptrend resume.

Clearly the DOW is going sideways at the moment, and from a purely technical perspective, I don't know which way it will go in the medium turn.

As I explained in my previous post, I believe that a lot of active investors are sitting on the sidelines, and this reduction in demand has caused the DOW to go sideways. However, I believe that this scared money will enter the market based on two short term events, and what I believe will be the most likely outcome of these events:

a) lack of a serious terrorist attack prior to the US election, and the election of the next President (whomever that happens to be). This should see the DOW in the 10,600 to 11,200 range until.

b) Iraqi elections completed successfully. This should see the DOW in the 11,000 to 11,700 range fairly quickly, and then.

The uptrend will then resume at a similar rate of return to that shown on the chart below, which should see the DOW greater than 12,000 by March 2005.

It should be fairly clear that I am only guessing as to the actual levels, and of course I am assuming that both elections go relatively smoothly. However, I believe that the basic analysis is sound, and based on past experience, I know that the DOW can easily make the moves that I am suggesting.

In other words, I see 2 relief spurts, followed by a resumption of an up trend.

Cheers,
Mosaic

ken

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Tuesday, October 19, 2004 - 09:55 pm: