A sharp reversal has seen the Dow Jones Index trade lower to close the week below a key resistance level.

Looking at the weekly chart we can see that since the January low of 11634, the index has rallied +12.91%. But in just one week the Dow lost -5.15% which is more than a third of the gains that had taken seventeen weeks to accomplish.

Interestingly we also have two technical factors to consider. Firstly, we have an Outside bar pattern which has engulfed the previous three bars. This is a rare occurrence and also bearish. Last week I suggested that on the Daily Chart, the RSI looked week and to expect a minor correction if prices did not rally on Monday. In fact Monday also saw a minor double top pattern which provided further bearish clues. The bearish scenario played out and a break of 12850 took the Dow down to close the week -676 points lower.

Secondly, we now have the Dow sitting on its 20 Week Moving Average which may provide a short term support base for the Dow to rally from. But notice that the RSI has also provided a Sell signal although unconfirmed by the Moving Average.

This puts the Dow in a tricky situation which simply means that short term we could see a bounce from the current level but how far up the bounce carries the Dow remains to be seen. It will need to clear 12670 to then target 12718 – 12800.

Support comes in at 12455 – 12388 which if broken could have severe consequences for the Dow Jones. A key point to remember is that the rally from January appears to be an ABC correction to a longer term down trend. Surprises could still be in store for the downside.