The previous week closed with a net loss of -0.27% and started this week with a sharp decline. This indicates clear weakness and historically we have found that the month of September is not a good time for the markets. In fact there have been more declines rather than rallies.
We also noted that the index is still struggling to climb above the 11,700 level which has pushed the Dow Jones lower several times. With this type of price action we could be setting the stage for a sharp decline.
Let’s look out for the recent pivot low of 11,290 which if broken could see the index fall lower back towards the 11,100 area and lower back down to the major July low of 10,827.
In sideways markets which are what we seem to be experiencing right now, the risk can be hard to manage and an increase in volatility can swing traders up and down. The best thing to do in this scenario is to maybe sit on the sidelines until a clear direction has been put in place.
Technical indicators are suggesting that the market is still weak as indicated by the RSI indicator on both the short term and intermediate term time frames. The recent Buy signal has been negated by a new double Sell signal and the index is also back below the 20 day Moving Average.
All of this analysis points to lower prices and a Fibonacci Time Analysis points to a turning point in either September or November. Support levels for lower prices come in at 11,225 and 10,700 for the next few weeks. If we deteriorate with severe declines the next major support levels are below the crucial 10,000 level.
At best we can expect further sideways price action with a bias to the downside unless we break above 11,635 very quickly to negate the bearish analysis for now.
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.