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TECHNICAL ANALYSIS


Dow's Decision

10/28/09 09:19:10 AM
by Austin Passamonte

Here's the near- to midterm outlook for the Dow Jones Industrial Average.

Security:   DJIA
Position:   N/A

Seen one, seen them all: major stock index markets have painted pretty similar charts over the past year. Think about it — a big nosedive late 2008, a bottoming turn early 2009, and a relentless plod upward ever since.

FIGURE 1: DJIA, WEEKLY
Graphic provided by: TradeStation.
 
The same general bullish head & shoulders pattern measured in SPX is mirrored in the Dow Jones Industrial Average (DJIA), with 6400 + lows to 8850s neckline = 2,400 index points width. Tack that on to a neckline of 8800 breakout and we have something in the area of 11,200+ as the ultimate upside objective. Straight up or staggered ascent from here? That is the question. See Figure 1.

FIGURE 2: DJIA, WEEKLY
Graphic provided by: TradeStation.
 
Adding a retracement grid overlay to this picture shows where price has paused at 62% of the peak swing high to swing low range there. Past two sessions at the time of this writing are in breakout mode above that popular magnet, now heading toward the next level near 10,700 zone. See Figure 2.

FIGURE 3: DJIA, DAILY
Graphic provided by: TradeStation.
 
But once again, recent price action has formed an expanding wedge or bearish megaphone pattern. Instead of price action storing up energy into an apex wedge for power move up, this type of pattern expends energy in sideways fashion. Upside breakouts are certainly possible, but bearish resolution is statistically probable. See Figure 3.

This year's rally has come a long way off lows. It can certainly continue pushing higher. The next "tell" for what follows will be a successful breakout or breakdown from the current megaphone pattern forming now.



Austin Passamonte

Austin is a private trader who trades emini stock index futures intraday. He currently trades various futures markets from home in addition to managing a trader's educational forum

Title: Individual Trader
Company: CoiledMarkets.com
Address: PO Box 633
Naples, NY 14512
Website: coiledmarkets.com/blog
E-mail address: austinp44@yahoo.com

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