It seems that the sub prime mortgage issues are continuing to exert pressure on world markets. Is this just the beginning of a major crisis? Certainly the Dow Jones is feeling the pressure.
This week has seen the index back at the Fibonacci support level of 13532. We have in this area a confluence of Fibonacci numbers which are currently holding the index up.
But the problem we are facing on a technical level is that momentum indicators are in negative territory. The Relative Strength Index has now provided a Sell signal during a month which is historically the start of the strongest three month period. This is not good news. Previously we had a Buy signal on the RSI which has now been negated by the turn lower. This has now put the short term bullish forecast to Neutral â€“ Bearish.
In order for the index to head higher and turn bullish again, we need to see two events occur. Firstly the Dow needs to get back above 13633 and clear 13765. Then we also need to see the RSI climb back above the 50% level. If both actions are met then a cautious buy mode should be back in place for a re-test of 14052.
Do not forget that years ending in 7 tend to close the year with negative results and hence I would still remain cautious to any upside moves unless we see strength of buyers coming in at the close followed by continuation moves.
If we break lower below wave 4 which comes in at 13407, then the Dow may find support lower at 13171 â€“ 13121. This area would also create an ABCD pattern and provide a short term oversold situation and a short term buy.