Normally a market retracement can reach 38% or 50% before a continuation ensues in the previous direction. In the current move the Dow Jones had reached the 38% level of 11,709 level with a high at 11,698 before being rejected lower. This is an indication that he index remains on the weak side.
We need to pay very careful attention to the current situation as things can start to deteriorate quickly if the upside momentum is not reversed sooner rather than later. Immediate attention is drawn to 11,014 which could provide support. IF this level does not hold then it is more than likely that the recent low of 10,827 could be taken out and the index can fall sharply lower.
The 11225 is the 127% Fibonacci Extension level and this area needs to be looked upon as a border line. Basically it tells us we are short term bullish above and bearish below. Critical support levels are coming in at 10,700 followed by 10,575 – 10,590 which means that from the current level the Dow can still fall by a further 500 – 600 points.
Of course technical indicators remain oversold but this is to be expected given the fact that we are talking about a weak market with bears outnumbering the bulls at present.
The overall five wave pattern supports the above technical views that further downside targets are still possible and that indicators will not be the key to finding reversals but price itself will reveal to us when the market is going to turn around.
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.