The Dow Jones Industrial Average (DJIA) recently broke through resistances that had held the index in a sideways zone for nearly 6 months, from May 2013 to November 2013. As predicted, on the break of resistance at 15655, the index has renewed its previous trend & is now at 16500.
The old support & resistance points/zones are marked in the chart above, you can click on the following link to read the older post on the DJIA - http://www.marketlok.com/4/post/2013/10/djia-index-the-government-shutdown-blues.html
Lookin at the present, as mentioned earlier the DJIA has renewed it's previous up-trend & has already moved up over 900 points. The index is holding support levels very well as of now & has shown very large momentum. This is expected as the 6 month sideways zone on the index has acted as a propulsion zone.
Supports for the index are at 16196, 15704, 15530 & 15396. The support levels at 16916 & 15704 are strong, some price action around these price pints will not do any damage to the index in the medium to long term. The support levels at 15530 & 15396 form a support zone, which is very strong & hence important. Any breach of this zone will end the prospects of the up-move continuing & might push the index into a sideways zone or even into a down trend, which looks very unlikely as of now. Resistance will be seen at 16690, 16958.5 & 17300. These are also the next immediate targets for the index.
The index has surpassed all performance expectations so far. The sideways zone from May to November 2013 has only made the trend stronger. The DJIA is still very bullish & will remain bullish as long as it holds important support levels, which are - 15530-15386 as of now.
The USD/INR currency pair remained sideways for the last 12 months. Within this sideways zone, from April to May, it attempted to begin a new down trend but failed to breach the critical support at 53 & bounced back from 53.5 to signal a new up-trend.
The new upward move began at a close above 54.95 in the month of May. Important resistances at 56.9 & 58.5 have been breached successfully & quickly. Since the up-move has been quick without any consolidation so far, the stop-loss for this move still remains at 53 but we’ll see this changing rapidly over the coming weeks. The pair is in an upward trend with supports at previously breached resistances & as listed below.
Supports – 56.9, 55.45, 53
Resistance – 58.5
We might see a little consolidation over the coming weeks & then again a continuation of the uptrend.
What are candlesticks?
There are many different kinds of stock charts in use, but Japanese candlesticks are probably the most commonly used by many experts all over the world. This style of charting is considered to have its roots in the Edo-period rice markets of Japan. Historians estimate that they took their present form in the latter half of the Meiji period (late 1800s). Originally, they were just sticks drawn in red or black.
In a daily time frame chart, a single green or red candle expresses price movements for a single day; in a weekly time frame chart a single candle expresses price movements for an entire week. Candlesticks are used even on lower time frames for instance 5 minute charts or 60 minute charts.
The graph below shows different types of red & green daily time frame candles, where each candle represents the price action of a single day.
How to read candlesticks?
A candle consists of two parts, "the real body" & "the shadow". The thick part of the candlestick is called the real body, it represents the range of the stock’s opening & closing. The thin lines above & below the real body are called the shadows. Shadow above the real body is known as the upper shadow & under the real body is called lower shadow. Top price of the upper shadow is the high of session & low price of the lower shadow is the low of the session.
As shown in the diagram below, when the color of the real body is green it means the close of the session was higher than the open. The bottom of the real body is the opening price & the top of the real body is the closing price. The shadows represent the high and low of the session respectively.
If the real body is red it expresses that the close of the session was lower than the open. The top of the real body is the open & the bottom of the real body is the close. As in the earlier example the shadows represent the sessions high and low.
How Candlesticks are drawn?
Let us have a look at how candlesticks are drawn. To draw a daily candlestick you will require the open price, closing price, low & high of that days movement. Let's suppose that intra-day stock prices on a day moved from 9:00 AM to 16:00 PM & produce an upward moving line graph as shown below:
Or a downwards moving graph as shown below :
We can express these above line graphs as candlesticks. A green Candlestick expresses that market has closed above the opening price, in other words closing price of the stock is greater than opening price of the stock. The image below shows the price movement of a positive closing market, where market close is higher than market open, which has been mapped into a green candlestick :
A red candlestick, as in the below image, expresses that the market closed below the price of the opening. In other words opening price of the stock is greater than the closing price of the stock. The image below shows the formation of this price action into a red candlestick :
Candlesticks express stock price movements over a set period of time, either one day or one week or an hour etc. Regardless of the time frame, the shape of the candlestick & its combination with the other candlesticks can be used to identify the market’s direction & its relative strength or weakness & that is the main purpose of the candlestick charts.