[Chart] Dow Jones 27/05/2010
U.S. stocks rallied amid a statement from the Chinese Government denying reports it would sell euro-bond holdings. The Euro rebounded as concerns about Europe’s debt crisis ebbed. The Dow Jones advanced 2,85%, the S&P 500 climbed 3,29% and the Nasdaq (back into positive territory for 2010) closed up 3,73%.
Looking at the Dow Jones chart there is an interesting formation in progress which reminds us very much of the mini crash in January of this year triggered by the Greece debt crisis.
Both the 10 and 30 days moving averages crossed a few days after the initial decline (20/01/2010) then the Dow tested a resistance at around 10.200 just to drop further into levels around 9.900 points. From there the market recovered and formed an upward trend that lasted (after a short stop at the 10.400 resistance) up to 11.250 points.
Now it seems we are looking at the very same scenario a few weeks later. Again, we had a strong initial decline with the escalation of the Greece debt crisis which sent the Dow back to 10.400 points (ignoring the flash crash which has no fundamental significance). After a short recover the Dow declined further (Spain and Portugal sovereign debt ratings); again to a level around 9.900 points. Today the market marked another strong rebound which is very similar to the formation at around 09/02/2010. Looking closely, both formations are very similar and they differ just in the time frame they occurred.
Should this similarity be of any technical significance we should expect a moderate but constant upwards trend over the next two to three months.
This thesis is support by the ADX indicator with readings over 49 which indicates a short-term trend change. The 10 days MA crossed the 100 days MA which is a negative sign should the downward trend continue.
The markets currently depend heavily on new developments in the Euro crisis and volatility is likely to continue over the next two or three weeks.
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