Dow Jones clears first base…

The main question on trader’s minds right now is if the current move is going to be the start of a major move to the upside. And given that we have seen a +9.6% move from the July low, one could believe that this is indeed a significant factor. However, we must really focus on the larger degree trend in that we have already lost -17.5% from the May high of 13,136 and that the current move is really a counter trend rally. In other words we should assume the rallies to be corrections to the main trend.

Therefore we should be focusing on resistance targets which could potentially halt the rallies and keeping the index from seeing new highs. That being said, the bears are going to keep this market under pressure unless we can see a significant turnaround. So what would it take for the market to experience this turnaround?

Initially the Dow will need to clear 11,710 which it seems to have struggled with over the last three weeks. If we can stay above this level then the next main resistance barrier comes in at 12,255. But also the current pattern formation could either be an ABCD correction or a five wave formation which could end up having a choppy price action during its corrective move.

If during this correction we can see a strong momentum build up and see positive closes near the intra day highs then that would indicate the bulls are starting to take control and feel confident going home on the highs. There really is an overall lack of confidence in the markets at the moment and the drop of Crude Oil has had no major impact on the indices as one would expect. Overall the commodities markets have started a decline and if investors feel its time to move back into stocks then much work is required to take this market back up to key levels.

For the moment though, I would keep a close eye on 11,380 as a support this week of which a break below could take the index lower to test lower support levels. 11,225 is still an important level and must remain intact.