Is the Dow Jones in an uptrend or downtrend?
That is a key question on many traders€™ minds. With the recent price action turning bullish after a break above 12303, the index headed back down and found support at 12200 and also at the 20 day moving average.
The longer term trend which incorporates the quarterly and monthly charts are still in a bearish mode. However the index confirmed an uptrend on both a weekly and daily basis but has now turned back down on the daily basis.
What this tells us is that the index is still trying to ascertain a direction of least resistance. We also are in a wave four formation which typically trades sideways and so until a clear breakout occurs we either remain on the sidelines or trade in a choppy environment.
Therefore, we need to see a break above 12380 immediately to target the 12767 high otherwise a break below 12176 would suggest that a low has not been formed for now.
Notice how the RSI is flirting with the reference line also confirming a sideways price action and until we an climb back above the key line the index remains weak.
With the recent rate cuts and decline in oil prices, there has been little inspiration from external factors to lift the spirits of the index and it seems the only reaction we can muster out of the Dow is on bad news. Hence it is imperative to use protection in the form of stops or puts to protect on any sudden news which could propel the Dow to much lower prices.
Traders across both sides of the ocean are wary to higher prices and sentiment should not be discounted in the current market environment.