The Bear Stearns scenario contributed to the Dow losing over 400 points since last Friday. However, Monday saw the index reverse very quickly to close the day higher and with a Key Reversal Day.
But if one were to take a look at the bigger picture, it seems that any rally is met with more sellers pushing the market lower. So we can assume that the bears are still in control with the overall trend remaining negative. Also we know that the recent W4 high of 12767 remains a key upside resistance point and also formed a classic Double Top pattern.
For the coming week, 11877 is a Fibonacci support level we have mentioned previously and if the index remains below this level then there could be further weakness ahead.
In order to turn bullish for the very short term, it would require a break above 12303 for the Dow Jones to head higher up towards 12767 and we also need to see the RSI indicator turn positive.
Note that we are still below the 20 day Moving Average and so unless we see a sharp reversal higher, all aspects are still pointing to lower prices.
If we do continue to see lower prices then a Time Cycle points to March 21st or thereafter for a possible trend change in the markets. We need to see both a weekly close higher and breaks to the upside to confirm that an important low is in place.
The downside targets are still in place for 11395 – 11325 and possibly a spike lower. Right now many traders are looking at short term profits and benefiting from the volatility in the current market environment.
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.