Tuesday, August 04, 2015

DJIA: Bearish Signs Present

DJIA has bumped thru its long-term uptrend line. While this isn't the best way to flag a breakdown, the index is turning negative when viewed in junction with technical indicators. Firstly, you may note that its MACD- long since cut below the MACD signal line, is now poised to enter the negative territory. Secondly, the rising -DMI is now joined by rising ADX- which signal the possible start of downtrend with momentum gathering.

Chart 1: DJIA's weekly chart as at August 3, 2015 (Source: Stockcharts)

DJIA is catching up with DJ Transport index. Much has been said about the weakness of the Transport index over the past 3-4 months. While that index has broken below its accelerated uptrend line, S1-S1, it is still above the longer term uptrend line, SS. In fact, it has rebounded off the SS line just 2 weeks ago. Looking into the Transport index chart, we can see the recent fall coincided with its MACD entering the negative territory and the rise in its ADX.

Chart 2: Transport's weekly chart as at August 3, 2015 (Source: Stockcharts)

The broader S&P500 index is testing its uptrend line. MACD is comfortably above the zero line while ADX is starting to inch up.

Chart 3: S&P500's weekly chart as at August 3, 2015 (Source: Stockcharts)

Finally, the party in Nasdaq is still going strong. Despite the rising prices, we note that both +DMI & ADX are now flat line. This means that share prices are rising on its own steam. Once the steam is exhausted, the share prices will start to drift down.

Chart 4: Nasdaq's weekly chart as at August 3, 2015 (Source: Stockcharts)

Overall, we can say that the US markets are a mix bag. The weakness in the main barometer DJIA is a surprise as compared to the other indices, except Nasdaq. The latter is probably driven by changes in technology and a delayed replacement cycle. Nonetheless, this weakness could be a harbinger of bad news to come. Thus, we need to monitor DJIA closely for the next few weeks.

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