Right now we as trader have to focus on 2 key points: Support and resistance.
Last week I highlighted to watch Fibonacci turn dates of August 3rd to 10th and also the Fibonacci 13225 as a support level. The index has tested this level 5 times now and rallied higher within this timeframe. Unless this is just a consolidation pattern, I believe we can say that the low of 13132 may now be Wave 1 and a short term low.
As long as the upside momentum remains intact, we could look for the resistance levels to be met around the 15 – 17th August period. Historically, from the 5th August to the 25th, the Dow moved higher eight out of nine years.
If 13503 is cleared on the upside, then our objective of 13682 – 92 will still be our focus. This is our resistance level where Wave 2 could terminate and coincidently form a bearish head and shoulder pattern to take the market lower. Just below this level we have a hurdle of 13577 – 13603 to clear.
Traders should also note that the down move from July to August has been 889 points. From our cited upside targets, an equal and symmetrical measure would provide us with a downside target of 12714 - 93.
It is rather uncanny that from various inflection points, the Dow seems to be looking at 12735 as a key downside magnet. Since 2006, declines have been between 6-8%. Will 2007 bring the bears out from hibernation for steeper declines?
Whatever the Fed decides for the short term, long term debts are still a major concern. We had better get used to our friend “Mr. Volatility.”
Sandy Jadeja is Chief Market Strategist for ODL Securities and founder of www.Spreadbettingtowin.com where he teaches low risk trading strategies and money management.