But consider this; in most impulsive moves we often see a retracement to the 50% level before seeing a continuation of the prior move. In this case the prior move was to the downside.
If we also take the fact that February is the weakest month of the first quarter and being at a possible resistance level then we may be facing further downside ahead. But how do we position ourselves for the next direction?
Firstly the Index needs to stay below Wave 1 which comes in at 13092. This should be considered as the main resistance area. Second – we have two Fibonacci levels coming in at 12916 and 12960. Already we are in a resistance zone of 12614 – 12707 and certainly Monday’s price action rejected this area.
It is possible that we may see slightly lower prices and then a thrust higher to complete this counter trend move.
Some traders comment that because we are back above the 20 day Moving Average that this may act as a support for the index. However, momentum indicators have not yet confirmed the recent strength to the upside. We have very quickly gone from oversold to overbought.
Right now the pivot low of 12250 should provide a support base and if not violated then upside targets could come into play. If on the other hand we break below this low then the decline may resume.
Bear markets require declines of -20% or more. So far we have technically not seen this yet. But if we do then panic sellers may drive the Dow even lower and even quicker than before.
Volatility is the name of the game and it’s not all over yet.
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.