- This is the chart for Dow Jones showing the last rally since 2009. We have broken into new high grounds, but certain points need to be pondered over.
- Thought the rally is looking strong, it is still contained within parallel lines, and that tells us that this price action is still in the corrective realm.
- Prices are approaching the top boundary of the corrective channel, at the same time RSI is in OB zone, getting resisted at the previous peak in RSI, giving rise to a sort of negative divergence.
- Most obviously the last peak around 14200 odd levels, becomes the key level, should we break below it, we can call at least a short term correction to this rally, if not the start of a new bear market.
- In lieu of gathering more evidence supporting our view, I have attached chart of Dollar Index below, which makes some startling revelations for us.
- The whole correction post the rapid fall from 2002 - 2005, so far looks like a rounding bottom to me on this monthly chart of DI. We had earlier proposed a view that this correction is a pause in the existing downtrend, and is taking the shape of a triangle, refer here.
- But some new developments warn us against such a possibility.
- We can see that, Prices have been getting resisted at the falling trendline (blue color), and also making higher lows, at the same time.
- But the interesting thing is that similar pattern is forming in RSI, and RSI has given an advance BO above its own falling TL, more often than not prices follow suit.
- So if DI is giving us a BO above a multi year TL, then surely this will not augur well for the equities, aka DJIA.
So my final word on it is, should we get a BO in DI, then we are in for a turbulent times in equities, and economy in general.
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