As previously mentioned, the index needs to remain above 11,225 for the near term if we are to see higher prices. At present I would like to see the Dow clear above 11,580 and to also see the RSI indicator rise to provide a Buy signal.
However, with the index breaking below 11,260 this week it appears that we may still not have gained enough strength to help start a rally. If we start seeing the index step below the 11,225 level for more than three days then I expect to see a re-test back down towards the major 10,700 50% retracement level.
On a longer term timeframe maintain a close eye on 10,820 of which a break below could see a sharp sell off to the 10,700 level and for the bulls we will need to see a rally above 11,700 before focusing on upside resistance levels. Remember that these levels are for the “Intermediate term” traders.
The bigger picture still tells us that the market is down over 20% from last years highs and the economic outlook has not really changed much. In fact many traders feel that there is still more bad news to come out of the woodwork. Combine this with the larger pattern on the monthly charts and there is still potential for more downside if we see a breakdown of the mentioned support levels.
In the current climate I would maintain a close eye on the shorter term levels as these are the first to provide us with the much needed clues to future direction. Also we notice that with the decline of Crude Oil this has not led to the anticipated rally which suggests the idea that the indices are weaker than expected.
The current weeks price action could be setting us up for the next big move ahead. In the meantime have a great trading week.
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.