DJIA 7/7/09

An update to the last post. The outlook has not changed.

5mo daily chart-fibo. The mar09-jun09 advance. To increase the likelihood that this is the first move up of a major reversal after hitting the bottom at 6469, then this current retreat that commenced after the 8877 peak in early jun09 needs to find support somewhere between the 8000 and 7400 range. Anything below that strengthens the case for a continuation of the downtrend.

4mo daily chart-HnS. A head and shoulders pattern was completed today that confirms the resumption of the downtrend after the early jun09 peak of 8877. The pattern suggests a price objective of around 7700.

4mo daily chart-ichimoku clouds. the dow is inside the kumo cloud-a range or layer of potential support levels. In this situation, the index is considered to be in an unbiased state and the trader is best to wait and see in which direction it will break away from the cloud.

1yr daily chart-inverse HnS. On a bigger time frame, the index appears to be in the process of developing an inverse head and shoulders pattern. For this to come to a fruition, the dow should find support at or near 7500 then reverse and consequently break above 9000.

Outlook. For now, the technical view is that this new downturn is part and continuation of the prevailing bigger downtrend. However, the (a) MACD divergence and (b) the seemingly developing inverse head and shoulders in the 1yr chart suggest a potential for a major reversal. To increase the likelihood of a bullish reversal, the index needs to find support between 7400 and 8000. The price objectives of the (1) 5mo fibonacci study, (2) the 4mo head and shoulders, (3) the 1yr inverse head and shoulders pattern, and (4) the 3mo ichimoku cloud chart collectively sustain this possibility. If the index does find support along these levels, then the chances of a reversal being underway is upgraded from possible to likely. A fall below the 7400 level rules out the likelihood of the Mar09 to Jun09 as the first move of a reversal and opens the way to a possible retest of the Mar09 low of 6469.