After failing to hold the support level of 12208 – 12111 the Dow Jones index tumbled lower to lose -464 points.
The trigger came through when the index broke below 12076 and very quickly saw the bears take control again to drive stocks lower just when traders thought we were on the verge of a rally.
Since the sell signal came through in mid May the Dow has lost over 800 points and there is still no sign of a bottom as we speak. The key factor is now that we have taken out short term support can the Dow rally back to recover the recent losses?
We are very quickly approaching the January 11364 low and it appears that the bears will want to at least test this level if not break below it. We do have a series of lower highs and lower lows which indicate that the main trend is still down. This would suggest that the odds favour a test of the lows but also likely that over the next few months we are most likely to see the 11395 – 11325 area being reached.
In order for the short term trend to turn higher we would need to see the Dow get back above 12120 but more importantly momentum to the upside would need to come in at a strong level.
As mentioned previously, volatility is likely as we are in a wave four stage and looking to complete wave five at a lower level. At best we may see some consolidation take place but over the coming weeks I am looking for sideways to lower prices and aiming to sell the rallies.