Sunday, January 24, 2010

End of Market Rally in US (2010-01-24 DJI analysis)

Why am I using such a pessimistic title? I believe most of you know that Obama is limiting size of banks and prohibiting proprietary trading of some commercial banks. In other countries, like China and U.K., are adding reserve rate. They all want to reduce risk of the banks and to prevent the Credit Crisis from happening again. After the market has become stable enough, governments have to free the market (e.g. pulling out the money they used to "save" the market) and have to take measures to ensure the same thing will not happen again. This is the time when a tumble appears. And it is about time. So, the fundamentals support my title.

In technical views, let's see the below graph.



Firstly, we can see that DJI has dropped through the long-term up-trend line (in violet and dotted). It is a bad sign for DJI. Then, it just passed through the 50%-line, it looks like that it would keep going downwards. The only support is the short-term uptrend line (in blue lines), but it is for short-term only. So we can conclude that, the index may have a bit rebound in short time, but the whole trend has reversed and become a down-trend.

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