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CHART ANALYSIS


A Look At The Dow

05/04/04 08:13:27 AM
by Gary Grosschadl

The Dow has come down 500 points from last February. What's the current outlook?

Security:   $INDU
Position:   Hold

The daily chart shows two patterns to be considered: A large symmetrical triangle and an Andrews pitchfork. The triangle shows a narrowing formation that will eventually be resolved. This formation is considered a neutral pattern as it can break to either the upside or downside. The pitchfork pattern (Andrews Line) however has a bullish bias, pointing up.

The pitchfork shows a classic move to the median (center) line where it reversed to start a downleg. Now the Dow has reached the lower median line for a test. What happens here can be telling -- a bounce off this trendline can initiate an upleg, keeping the bullish bias intact, whereas a move below the pitchfork could signal a bearish trend change for at least a test of the triangle's lower trendline. So what happens next should be closely watched.

Daily Dow chart shows two formations to consider.
Graphic provided by: Stockcharts.com.
 
Looking at the two indicators, a weak trend is evident. The DMI (directional movement indicator) at the top of the chart has three components. The ADX component indicating trend strength, is a rather weak 14.2. Good trend strength has a value of 25 or higher. The MACD (moving average convergence/divergence) also reflects poor trend strength with its sideways drift near the zero line. On a more positive note, the stochastics is now in oversold territory under 20 (%K) which hints at the likelihood of a coming upleg. The CMF (Chaiken Money Flow) indicator is still in a bullish mode, being above zero. This measure of buying and selling power has the supply and demand outlook remaining positive for now.

A bullish turn brings several upside targets into play. The upper triangle target near 10,500, a previous high of 10,580, and beyond that the median line target of 10,750 (last February's high). Downside targets include the triangle trendline of 10,150 and then the psychological 10,000 mark. Traders should be prepared for a move either way. I am leaning to a bounce attempt but the market, as always, will have the final say.



Gary Grosschadl

Independent Canadian equities trader and technical analyst based in Peterborough
Ontario, Canada.

Website: www.whatsonsale.ca/financial.html
E-mail address: gwg7@sympatico.ca

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