A late rally proved that the bulls are trying to take the lead after a weak start to the previous weeks trading.

It seems that the Dow Jones index is trying to gain upside momentum but is struggling to really thrust off a key support level. At the moment we have 12208 – 12111 as a base support which could provide a short term stable area where some upside price action could come into play.

Typically markets often react at the Fibonacci 0.618% level and this is what the Dow proved to traders once it had tested his level. Friday’s trading session saw the index rally by +292 points after making a low at 12076.

The current pattern suggests that this low may hold for the coming week but essentially the Dow needs to climb back above 12375 in order to test the 12481 – 12606 area.

If the Dow fails to climb higher within the next two days and gets back below 12076 then most likely we are going to see 11956 as the downside target.

The RSI has turned higher but still below the all important reference line and of course below the 20 day Moving Average. This is evident that the index is still weak and with the overall trend still down, the safest plays are to sell into the rallies. Odds are that the downside move is still not over unless we clear 12650 which will require the bulls to join forces and march this market higher very soon.

If we are in a wave four formation then I would expect further volatility and choppy price action over the next few weeks.