As we approach the Holiday Season the Dow Jones continues to search for direction. Will there be a Santa rally or will the bears come out to play?
DOW JONES Industrial Average
Trend – Bullish
New High – 10517
Previous Low – 9647
Resistance/Support at 10320 (Fibonacci 50% Retracement Level)
Commentary:
After twenty-one weeks the Dow still remains in an uptrend. However, the last three weeks have seen the index moving sideways as market participants search for direction. The quick 8.5% gain in early Nov has now given way to ranging market that is oscillating in a 320point (about 3%) range around the 50% retracement level of the 2007-08 bear market.
The index has been trading back and forth around the 50% Fibonacci level for 18 trading days. This is the longest period that the Dow has spent moving sideways in a trading range since May of this year. Significantly though, on the weekly chart the Dow has finally closed above the 50% retracement level for the first time in three weeks.
Unfortunately, for ‘Bulls’ the final day of trading last week saw the Dow close up for the day, but the close was on very-heavy volume. In addition to the heavy volume, the Dow also closed towards the low of the range. Both the heavy volume and weak close are signs of selling pressure.
The heavy volume comes after a sustained ‘up’ period that was supported by declining volume. Generally, this is considered to be a bearish sign. Further evidence of weakness can be seen on the weekly chart where the last three weeks of trade has produced three spinning-top candlesticks.
Whether this weakness is just short term indecision or the beginning of a corrective move down remains to be seen, but the Dow has had a strong run from the March low and a pullback of around 10-15% would not to be unexpected.
On the momentum front, the Dow continues to move in a long-term divergence to most momentum indicators. Bearish divergence is also evident between the Dow Jones Industrial Average and the Dow Transportation Index.
Looking at Elliott Wave Analysis the Dow remains well into what I believe is the 3rd Wave in an uptrend. A Wave 4 corrective move down or possibly even sideways would be healthy for the uptrend and may provide for an entry into the 5th (and final) wave which will take the index higher.
Any corrective move down will need to hold above 8878 high which was the top of Wave 1 (set in June).
In summary, the Dow remains in an uptrend but evidence of a flat or negative finish to the year continues to grow.
Take Action:
If you found this article interesting and informative, SIGN UP for the FREE fortnightly E-Newsletter.
The E-Newsletter provides fortnightly analysis of the major US indices (Dow, S&P500, NASDAQ), the Australian All Ordinaries Index and the UK FTSE100.
Chart reproduced with the permission of BullCharts Professional Charting Software
