Our analysis has proved correct after the Dow tested previous support and has since rallied. The technical picture has now provided a clear perspective at least for the short to intermediate term.
After finding support at 12715 which was a key level for support the index has pushed higher and cleared the Fibonacci 12916 level which is the 50% retracement of the October 2007 14198 high.
We also have momentum indicators in positive territory along with the index above its 20 day moving average. So far so good. So should we load up and expect the Dow to reach for new highs?
Let’s remember that whilst the index is up almost +13% from the January 2008 lows, the key point to remember is that the current move is simply a retracement of a larger degree. As traders we can focus on short term trades with good risk management. Therefore our price objectives which have so far played out nicely should help us manage trades respectively.
Right now as long as the index stays above 12850, then the next objective is the 62% retracement level of 13218. Also the summer months often see the index lack in volume as traders depart for their vacations. With most of the bad news factored into the markets it does not take much in today’s markets to see sharp reversals.
At current levels I am inclined to nip in and out of the markets and bank profits where given and also remain vigilant to change from bullish to bearish if need be.
The Relative Strength Index is starting to show signs of weakness which support the ideas above and if we don’t see strong price action with the market closing on its highs soon, then expect at least a minor correction over the next few days.
End of June has a Fibonacci time point which may mark another prospective turn.