The current year has by far remained quite turbulent for the global equity markets. If we look and examine the current technical setup, the Dow Jones Industrial Average (DJI) and the broad market index S&P500 are sitting at a very crucial juncture. Both of these indexes are clinging to their 200-Week MA. Apart from this, both of these indexes are showing the strong bullish divergence of the RSI against the price.
This kind of technical development is taking shape for good quality stocks as well. The recent corrective and volatile times have seen these stocks correcting significantly; in the same breadth, many good quality stocks are showing strong signs of some bottom in place.
DOW is once such stock. This Dow Jones Index constituent is showing signs of an imminent technical pullback.
DOW marked a classical double top near 70 levels; after resisting this double top pattern resistance, the stock tested the zone of 50-52 levels twice before violating that support in the previous month.
Before the support zone of 50-52 got violated, the stock was oscillating in a broad trading range of 70-50 for a couple of months. The most recent price movement shows that the stock has made strong attempts to put a potential bottom in place and stage some meaningful technical pullback.
The RSI is showing a strong bullish divergence against the price. If we examine the most recent price move it is evident that while the price made lower lows, the RSI did not and this led to the formation of a strong bullish divergence of the RSI against the price. This increases the possibility of the formation of a reversal point; the stock is laying the ground to put a potential bottom in place.
The stock is rolling back towards the improving quadrant as it is showing sharp improvement in its relative momentum against the broader S&P500 index. The entry in the improving quadrant would mean a potential end of the relative underperformance of the stock against the broader markets. The RS line against SPX is seen taking the support. It is also seen changing its trajectory and inch higher. Weekly MACD stays in continuing buy mode.
If DOW tries to put a potential bottom in place, it may see a technical pullback which may see the stock testing 51-54 levels over the coming days. Any close below 40 would negate this view.
Milan Vaishnav, CMT, MSTA,
Member: (CMT Association, USA | CSTA, Canada | STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)