DJIA: 2/11/2006

 


Here's the DJIA 6 months chart. Things to note on the chart:

1. Negative divergence on MACD, RSI indicated by the blue lines ("Take Note"). This indicates a downward bias and indeed that's what we've seen over the past 3 weeks.

2. Notice the 10,700 - 11,000 tight range over the past 3 months.

3. 50-day MA tested on 02/10/2006 intraday.

4. Note the support and resistance... the 10,730 support also coincides with the 38.2% Fibonacci retracement, i.e. 10700 is very critical!

Let's look at fundamentals for a moment:

1. Earnings - a few misses on the tech side, GOOG, AMZN, QSII.

2. Fed - doesn't look like they'll stop here even though the economy is exhibiting weakness - weaker GDP and productivity numbers.

3. The world: Oil, Iran, Iraq - it's a mess. There's fear.

4. The yield curve - it is flat and NOT inverted - all y'all bears out there who keep saying it's inverted, get your fact right! Here are the most recent US Treasury yields from Yahoo Finance:

Maturity Yield

3 Month 4.33
6 Month 4.48
2 Year 4.67
5 Year 4.58
10 Year 4.58
30 Year 4.55

3 month & 30 year spread: +22 basis points.
6 Month & 30 Year spread: +7 basis points.
2 Year & 30 Year spread: -12 basis points.

At worst it's inverted between 2 year and 30 year. But when you consider the 6 month, it's not. So, I'd say it is relatively flat.

But, the bias certainly seems towards inverting. What does this mean? There's more confidence in longer term bonds than there is in shorter term bonds, i.e. investors are more confident of the US economy longer term than shorter term.

So, here's my take: I think the range continues, perhaps with a downward bias for the near-term. We could make it back to 11K but I don't see any reason to push above it - I expect 11,000 to continue to be a resistance, with 10,700 a near-term support.