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TECHNICAL ANALYSIS


Do The Indexes Call For A Correction?

02/12/13 08:38:42 AM
by Koos van der Merwe

We know that a correction is on the cards. But what do the daily indexes tell us?

Security:   DJI, SPX, NDX
Position:   Buy

When the market rises as consistently as it has, all the bears come out of the woods and shout, "A correction is on the cards!" We all know that one must occur, but will it be the "Sell in May and go away" variety or will it be sooner that that? Looking at all the indexes on a daily basis shows the following.

FIGURE 1: DJIA, DAILY
Graphic provided by: OmniTrader.
 
Figure 1 is a daily chart of the Dow Jones Industrial Average (DJIA). The vote line is still in a buy mode. The relative strength index (RSI) is trending down but the stochastic RSI is oversold, not yet suggesting a buy signal, but possibly soon.

FIGURE 2: S&P 500, DAILY
Graphic provided by: OmniTrader.
 
Figure 2 is a daily chart of the Standard & Poor's 500. As you can see, the vote line is also positive, with the RSI looking bearish, but the stochastic RSI in an oversold position looking as if it will give a buy signal in the near future. Figure 3 is a daily chart of the NASDAQ.

FIGURE 3: NASDAQ, DAILY
Graphic provided by: OmniTrader.
 
Figure 4 is a weekly chart of all three indexes. They all look identical. The vote line is positive, and the RSI is approaching overbought levels. The indicator RSI of an RSI for the DJIA, is still showing an uptrend, but the S&P 100 is at overbought levels, with the NASDAQ looking undecided.

Of course, a correction after a strong rise is always on the cards, and expected. At the moment, though, both the daily and weekly charts are not calling for a correction.


FIGURE 4: THREE INDEXES, WEEKLY. Here, I have used the S&P 100 rather then the 500.
Graphic provided by: OmniTrader.
 



Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

Address: 3256 West 24th Ave
Vancouver, BC
Phone # for sales: 6042634214
E-mail address: petroosp@gmail.com

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