Most market indices have been in a sustained uptrend since March, but how much further can the markets continue to run? What follows is an assessment of the Dow Jones Industrial Average.
DOW JONES INDUSTRIAL AVERAGE
Trend – Bullish
New High – 10495
Previous Low – 9647
Resistance at 10320 (Fibonacci 50% Retracement Level)
Analysis:
The Dow remains in an uptrend as it continues to make higher highs and higher lows. The latest up move saw the Dow Jones gaining 8.5% in just 15 trading days as it moved from a low of 9647 to the latest high at 10495. This move took the Dow above the 50% retracement level (of the previous Bear Market) which is around 10320.
Significantly on the weekly chart, the Dow failed for the second consecutive week to hold above the 50% retracement level. We must continue to assume that the present uptrend remains intact until the completion of a lower high/low combination. However, there are signs that the current uptrend is facing resistance at the 50% retracement level with the weaker closes further supported by the completion of a spinning top then doji candle. Further evidence of weakness observed in the declining volume that has accompanied the latest move higher.
Whether this weakness is just a short term pause in the uptrend or the beginning of a corrective move down remains to be seen, but the Dow has had a strong run from its March low and one could expect to see a pullback of around 10% in the near future. Further supporting the view that a short-term corrective move is soon approaching is that from an Elliot Wave perspective the index is now well into the 3rd Wave. A Wave 4 corrective move down would be healthy for the uptrend and this would provide an opportunity for alert traders to catch the 5th (and final) wave which will take the index higher.
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.
Moving one time frame lower to the daily chart, over the last 10 trading days the Dow has ranged sideways in an attempt to consolidate at the 50% retracement level. However, signs of weakness have appeared with a number of narrow ranged inside days mixed with wide ranged down days. Of significance is Friday’s session which saw the Dow record its lowest daily low in the last 10 trading sessions. A failure to move above 10495 or a move below 10170 will signal the start of a corrective down move.
In summary, the Dow remains in an uptrend but evidence is emerging that all is not well in the short term. This is also supported by the fact that the broader indices (and stocks) are not supporting the 30 leaders as they move higher.
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Chart reproduced with the permission of BullCharts Professional Charting Software
