Thursday, July 15, 2010

DJ TAKING STOCK: Investors Shouldnt Be Fooled By Another Breakout

Being fooled twice is enough to shame any investor, but how about three, or even four times?

The current rally marks the fourth time since early May that the Dow Jones
Industrial Average has bounced more than 5%. Previous bounces have taken the
Dow above key resistance levels, and yet subsequent declines have resulted in
even lower lows. Essentially, the recent pattern surrounding key technical
breakdowns and breakouts suggests the Dow is nearing yet another turning point.

It is easy for bulls to fall into another technical trap, since the Dow has
climbed above the 50-day simple moving average, which has acted as resistance
since the Dow first fell below it in early May, and is now peeking above a
downward sloping line that started at the April 26 high and connects the June
21 high. But rather than embolden bulls, the apparent breakout should actually
make them skeptical, especially following a six-session rally.

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