Although November is classified as being the start of a strong three month period we do need to see more strength come into the markets. Last week we experienced a two day surge which has been the largest since five years but we are still the worst November since the year 2000.
A rally of our pre-mentioned support level has lifted the Dow Jones by +5.84% into short-term resistance. Can we continue the rally here or will we head lower?
Clearly the Dow has found support at the key 12830 Fibonacci level and helped lift the index up to a minor Fibonacci 50% resistance level of 13461 against the October high.
And although technically the index is above its 20 day moving average which short term traders classify as bullish, my concern is that momentum indicators have not yet confirmed the strength of this move. I would like to see another sharp thrust this week to clear above 13467 to head towards the 62% level of 13635 and then 13882.
The pattern formation is still not clear as to whether we have completed an ABC correction or an Elliott Wave 3. If we start to falter at the current level and fail to take out 13467 then we just may head lower which would confirm that we have a very weak market. In favor of the bulls though, last week also saw an “outside bar” formation which helps strengthen the case for further upside moves into December and January.
So for this week we need to break above 13467 to head higher and a break below 13210 could bring sellers into the game.
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.