Technical Analysis of Financial Markets

Tuesday, January 29, 2008

Dow Jones, 9-month RSI

The “Credit-Crunch” sell-off saw the Dow decline over 20% from all-time-highs within a 4-month period; technically, trading in recession territory. Since then, price action has rapidly climbed 1000 points from the lows in just 6 trading days closing near the 12,500 mark (Dead cat bounce?: 12,500 has previously served as both support and resistance and may define the bull vs bear case on the Dow; i.e. enter long above 12,500 otherwise remain short. As price action hit successive records between May 2007 and October 2007, RSI diverged and remains in a declining bias signalling a bearish long-term undertone. A possible favourable 50bps rate cut by the Fed on 30th January 2008 may set the scene for a rally on Wall Street; however, upside may be limited towards the underside of the declining RSI trendline.

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