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Red Alert on the Dow! Watch Out! - July 1, 2010

Red alert on the Dow! Watch out! The Dow Jones Industrial Average (^DJI) is at risk of breaking down! From my last post about the index a couple of days ago (kindly check my past entry here), it has finally approached the neckline of a head and shoulders pattern. The NASDAQ, which I presented earlier today (see here), already shows a breakdown from the same formation. Now, will the Dow follow suit? Let’s hope not but there’s a big possibility that it might. The MACD in i ts daily time frame has already turned negative, suggesting a likely down move soon. Moreover, the RSI is also indicating that its downside momentum is gaining speed. So if and when the DJIA falls below the neckline support, it could slide all the way to 8,250.00. Now, that’s a huge drop! But if the neckline holds (I’m crossing my fingers that it does), the index could once again bounce and at least aim for the previous high around 10,500.00.

The recent decline in the index was due to the less-than-stellar rise in China’s leading economic indicator which only rose by 0.3% after posting a gain of 1.7% in the previous month. This was followed up by a weak US ADP employment change number that showed that US firms only hired about 13,000 new employees in June as opposed to the 60,000 expected.

Today, the major markets could once again experience some selling pressure if the US’s pending home sales have indeed dropped by 7.4% or worse in May. The US’s ISM manufacturing PMI is likewise seen to cool down to 58.9 from 59.7. This could pull the index down as well.

Tomorrow’s big time event that will surely cause some volatility on the markets will be the release of the US NFP employment change. according to the estimate of the government’s actual figure, US firms have cut about 103,000 jobs. Now, if the ADP number is correct, the NFP could also come in worse. Such would likely spark some broad based risk aversion, causing the equities and the non-dollar currencies to lose ground.

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