Sunday, 19 August 2007

The Good, The Bad and the Ugly

What a hell of a week it has been. The DJIA kept on disintegrating, while the PSEi has been self-destructing at the same time. So let's take a look at the bigger picture. Let's take a look at the DJIA.

As we can see from the chart, the DJIA has been very volatile for the past sessions. I have been debating with my friend, Welles Wilder about what the DJIA is doing. He says he hopes it becomes a falling wedge. I don't agree as the falling wedge is supposed to be pointing to the 4:00 position in the clock. Not only is the supposed wedge pointing sharply lower, if this was a wedge, DJIA already broke through the support.

The other argument I see against the DJIA being a falling wedge is that the MACD's two lines are still diverging away from each other while it accelerates downwards. This tells me that the DJIA's drop isn't over. On the last bar of the chart, we saw that we had a massive return above the support line as this was the day the Fed surprisingly announced a cut in the discount rate it gave to the institutions it lent money to. It may not be the key interest rate, but at least it was something many were cheering for, although I feel it's misplaced. I still remember the one comment that stood out among all the hysteria, this is more of a short covering than anything else. This only means that this is like a band-aid solution. So we should expect more drops. By the way, I feel the DJIA is more of a head and shoulders than a falling wedge. I could be wrong though as the volume somehow doesn't follow the textbook definition. On the other hand, it is very possible that the H&S can now be considered a failed one as it has gone above the neckline again. Yet I feel this is still not over as it hit the 100MA only to go lower again.

Which now brings us to the PSEi. Ever since the big drop last Feb. 28, we have been climbing up to our all time high of 3822. Once the support broke, we have been on a tailspin. We had a 3-day rally but what's interesting to note was that on the 3rd day of the rally, the index tested the 130-day MA and has backed off from there. When we apply the Fibonacci retracement, we have already given back more than 100% of the gains since Feb. 28.

The worst part here is that we are not necessarily following the movements of the DJIA anymore. Even if there are positive days for DJIA, we still keep on dropping. All signs point down, and there is no reversal in sight yet. No wonder many have been fretting. The freefall has broken many supports and we are looking for a base. For now, the nearest that I see is around 2567. Unfortunately, this is no assurance that there will be a bounce off that area should we reach that. Hopefully we don't go down that far.

So what does our title have anything to do with these two indices? Well, the bad is DJIA, the ugly is PSEi. The good? Show me something good then I'll include it here.

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