The recent price action we observed on the Dow Jones fits the idea that we may have formed a significant low for the moment.
Based on the Monthly chart we have 10697 - 10573 as a Fibonacci support level. The Dow made a low at 10459 which was -114 points below the ideal level. This is perfectly acceptable in technical terms as we also witnessed a sharp spike higher above this level. This suggests that we could “possibly” have formed a low for the short term.
The term possibly comes into play simply because we will need to see the index climb above 11870 in order to continue higher. As long as we do not break below 10459 then it is likely that the bulls will try to take this market higher flushing out the bears as they run for cover.
Time analysis warned us that we were to expect a low during this week and so far played out in tune to the rhythm of the markets. There is also November to watch out for which could possible see another low take place in case this is not the main one as expected. The next support level to watch for would be 9871 if we take a further fall.
For the upside the momentum indicator which has failed again at the reference line would need to turn higher and the index could test the 11887 – 12328 levels before finding resistance. Also the overall pattern is still indicating that there may be more downside and the Government bailouts may not be enough to hold the markets for too long. Trying to curb short sellers did not help in the 1930’s and I doubt will have a major impact in the current market environment either.
For the weeks ahead we may see a consolidation take place with the index bouncing between the support and resistance levels trying to find its next direction. The main trend however still remains negative.
Sandy Jadeja is Chief Market Strategist for ODL Markets and founder of www.Spreadbettingtowin.com where he teaches low risk trading strategies and money management.