Saturday, February 19, 2011

Dow 30 year chart: What is it telling us?

As we begin a long 3 day President's weekend, I thought a look back on this stock market climb. At first glance the Dow chart below shows a downward slanting "W" pattern, or, as many technical people call it, a Head and Shoulders pattern. But while that's an important point of this chart as the recent climb has been impressive, what I want you to look at is the bottom chart which is of Volume over the past year. You will see on that lower chart an average volume red line but notice in the last year the volume has declined to a low of the past 10 years. When volume is strong and price is increasing it is quite Bullish. When price rises and volume declines significantly, that is quite Bearish. In this case, there is no question that the entire climb of the past year has been on very low volume. You see it has been climbing without the individual investor participation. This rise has exclusively been down by the Fed and it is not sustainable indefinitely. The longer this market goes up, the bigger the fall. Don't be greedy. Take your profits and be happy you have them. Keep what you have then in cash and just wait.

Click on the image to enlarge it if you can't make out the details.

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