Monday, June 15, 2009

Dow Jones Industrial Average in June 09 - top or ..what? (Part II)

So the 5 consecutive days of 'doji' on Dow Jones Industrial Average finally ended in large selloff today. No particular news to move the market, and it just sold off all day, no discernible panic, just quiet selloff.

However, the huge selloff volume was not there, and the index's May high wasn't breached on the closing basis.

So my quest continues. Is this peculiar formation top or bottom? Or the third way - terminal patient whose EKG monitor is going flat?

Here's the chart of October 2002 Nasdaq bottom. The index went down in a zig zag mode, making lower lows and lower highs, until one day it formed a 'doji' and then formed a 'hammer' the next day. Those were indeed the reversal signals, and the index was on the way to a recovery, no matter how tepid.

This doesn't resemble anything like what we have in Dow right now.

The next chart is Dow again, this time October 2007 market top (probably for the foreseeable future). Again, the movement is anything but stagnant, both on the way up to the top and from the top. The only place I found the index to stay about the same place was on the way up in September 2007, when the index ended 5 days pretty much flat. But they were nothing like 5 'doji's we just had on Dow.

If today's selloff marks the beginning of a new leg down, then this current pattern, I'm forced to conclude, is a new one. With so much intervention in the form of liquidity injection, quantitative easing from the Federal Reserve, so much Treasuries to be sold every week, already unprecedented government debt and tax to increase even more "to stimulate the economy", it just may be that the time-tested chart patterns no longer yield any meaning or prediction for the market.

(My longer-term outlook is bleak to say the least. I hope I'm dead wrong. Here's the post if you're interested.)

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