| DJ-30 Head and Shoulders |
|
We all know that the markets have been very volatile over the last few months and that there are a lot of nervous investors around not knowing weather to buy or sell, go long or go short. Sure we have had a massive bull market since the first quarter of 2009 up until May 2010 and many investors thought that the sky was the limit even thought there were clear signs of weakness as the markets were rising. What is interesting is that we should be constantly looking at the bigger picture to guide us what to do with our choice of how we trade our stocks.
I have decided to take a good look at the Dow Jones Industrial Average (DJ-30) and see what has been happening lately as there have been clear signs of weakness as the bears gain more strength as we see the prices of many shares plummet again. But what is really going on with the bigger picture ? I have decided to take a look at the Dow Jones going as far back as 1969. They say that a picture paints a thousand words and this is even more true for us as chartists as we look at the stock charts for clues of what is going to happen next. I know we can never be right all the time and that we can only assume what is going to happen based on what we see but lets have a look at some signs that are clear on the chart below.
There are clear signs of weakness as I mentioned before and the signs are becoming more clear as the markets are failing to push beyond the resistance line I have drawn on the charts at around the 10,700$ mark. You can also see a line of support that is sloping downwards and my worry is that if the head and shoulders that is being formed right now becomes complete, we may see a big test of the support line. If this line of support is broken we may well be in free fall from there on. The next clear line of support is waaaaaay down at the 2,800$ mark which would send many people who don't know what they are doing into shock.
The good news for those of us who are consistently educating our selves is that we can find many stocks to short on the way down if in deed it does happen. You can make money in a bear market a lot faster than you can on the way up. This is not to scare people but rather to educate them and let them what I am seeing in the markets. It is no way a guarantee of what is going to happen but it is a true picture of what is going on in the markets right now.
I hope that this is of some use to you and that you carry on your education in the markets and become a profitable trader.
|
Comments