Stock Market Analysis

Tuesday, May 25, 2010

Dragon Tail Formation...

The Dow formed a huge dragon tail formation today with strong participation, closing down marginally by 22 points today.

Worries on the Korean front caused markets across Asia to plummet, resulting in a deep low opening for the US market. This is certainly the most turbulent economic recovery phase that we have ever seen. The media's always full of good news during each of the last time the world walked out of an economic crisis but this time, it seemed like there are bad news sprouting out from all over the world. The European crisis as more European nations get into economic problems and the mounting tension between now possibly-nuclear-armed-North-Korea and South Korea. All of these macro geo-political and economic problems are certainly casting a shadow on the world economic recovery scenario.

Yes, this is going to be a "recovery" we have never seen before and could possibly put a ceiling over the primary bull trend in the US market. However, as trend followers, our job is to read the trend and action according to it without making any biased predictions.

So, what's a dragon tail formation?

Well, its my way of calling long hammer candlesticks formed at the end of a significant and strong downtrend which comes with strong volume, like what we see in the Dow today. Such a formation usually spells the end of a short term or intermediate term downtrend and it forming on the weekly 50MA intermediate support level does give it a lot more credibility. This means that it is certainly not time to consider being newly short. The situation now is such that it goes beyond mere technical analysis. If war breaks out in Asia, nothing can save the world market as nations in Asia take sides with and against the US. As such, we need to be nimble and pay attention to how this issue is developing as well.

For now, the Dow remains in a short term bear trend, intermediate bull trend and a primary bull trend.




Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!

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