A sharp decline of -312 points led the Dow Jones lower to test previous resistance of the 12700 area.
When a market breaks through resistance, this very often leads to a retest of the resistance area which is what we witnessed in last weeks trading. The index spent a considerable amount of time at the 12700 level before breaking through in mid-April.
The big question is will this now lead to higher prices? As long as we hold 12715 and can get above 12910 then it is likely that the index will head higher to test and break above 13132. The price objective for the upside is the Fibonacci 62% level of 13220 and above that we have 13650.
The recent decline very nearly took momentum indicators into a sell territory but Monday’s rally of +130 points took care of that nicely and has prevented what was expected by many to see the Dow head much lower.
Therefore we have a technical setup where we can see the RSI turning back up and the index back above its 20 day moving average. This would suggest at least for the short term that we have a bullish condition.
Again I would reiterate the Pattern is a retracement to the upside of a larger degree bearish pattern. Much work is required before we can turn longer term bullish. The good news is that we now have the Monthly, Weekly and Daily trends pointing higher. This condition is healthy for now but any sudden moves can alter this quickly due to the fact that we arte near key resistance levels.
So the market play is clear for the short term. Long above 12910 and short below 12715.