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Dhierin Bechai
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Dhierin is the developer of the AeroFuel and Cost Model, which is used in some articles as well and is freely available to premium members on AeroAnalysis. With his Aerospace Engineering background he has a more indepth knowledge about Aerospace products, so most of his articles will be about... More
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  • Technical View On Dow Jones And SP500 0 comments
    Jun 5, 2013 9:19 PM

    The Dow Jones and SP500 have seen a pullback in the past days and I was asked to do a SMA analysis to look at how the Dow Jones and SP500 stand at the moment.

    A little bit more about the background of the recent pullback:

    Stocks fell due to the speech Ben Bernanke gave and later on the news came that some of the Fed members already wanted to reduce the quantitative easing . At first stocks made a jump, to fall back later that day (resulting in the Doji Candle visible before the 2 red candles).

    Since the speech was given there has been a lot of uncertainty . Stock traders are afraid that the Fed might already cut back the QE in July.

    Besides that the Hindenburg Omen signals showed up, which scared stock traders, as it might be a sign of a stockmarket crash.

    The market is indecisive at the moment in my opinion. Bernanke signaled that if the economy showed recovery they might start cutting back. The fact that he said this made stocks drop. Some good macro-economic numbers came and stocks fell. This week some disappointing numbers came in and stocks fell even further.

    So at this moment:

    "Good news is bad news, bad news is bad news and no news is good news."

    I will look at the week chart (step size: 1 week) and the day chart (step size : 1 day).

    Dow Jones (US30)

    Week chart

    (click to enlarge)

    Figure 1: Dow Jones week chart

    10 SMA: Rising

    55 SMA: Rising

    RSI (14): About 70

    Comment: Actually the technical image didn't change that much. The SMAs are still rising. A Doji Candle is visible showing an indecisive stance. The RSI is slightly above 70 and is returning from being 'overbought'. The Dow Jones is moving away from the upper Bollinger Band, but is still above the 10 SMA.

    Day chart

    (click to enlarge)

    Figure 2: Dow Jones day chart

    10 SMA: Declining

    55 SMA: Rising

    RSI (14): Slightly above 30

    Comment: The 10 SMA has a negative gradient, but a cross is still far away. The candle hits the lower Bollinger Bands, we might see a bounce away from the lower Bollinger Band. The RSI signals that the market is approaching an oversold condition.

    SP500 (US500)

    Week chart

    (click to enlarge)

    Figure 3: SP500 week chart

    10 SMA: Rising

    55 SMA: Rising

    RSI (14): Slightly below 70

    Comment: Actually the technical image didn't change that much. The SMAs are still rising. RSI is slightly below 70 and is returning from being 'overbought'. The SP500 is moving away from the upper Bollinger Band, but is still above the 10 SMA.

    Day chart

    (click to enlarge)

    Figure 4: SP500 week chart

    10 SMA: Declining

    55 SMA: Rising

    RSI (14): below 30

    Comment: The 10 SMA has a negative gradient, but a cross is still far away. The candle is below the lower Bollinger Bands, we might see a bounce (up) away from the lower Bollinger Band. The RSI signals that the market is in oversold condition.

    At the moment it is very hard to make a call on this, as on the day charts the market is trading at or near the lower Bollinger Band and might see a bounce up and the RSI shows an oversold condition. Additionally most stock traders are in my opinion overreacting about the QE. It is important that QE continues and it was also said that at the moment recovery is too brittle to cut back the QE and the most recent macro-economic data have also shown this. If stock traders will start trading with sense again rather than emotion and panic, we might see a bounce up.

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