We were looking for a PRICE and TIME relationship where major moves often occur. Our expectation of a high during the week of July 20th at 14052 had been satisfied on a daily chart perspective with a high of 14022 on July 17th. In fact even our forecasted downside objective of 13225 had been reached swiftly.
Currently the Dow has made a low in Monday’s trading session at 13219. The question on traders mind around the world is “Have we started a larger degree decline?”
As mentioned last week, if 13400 is taken out then the INTERMEDIATE TERM TREND would turn bearish. As we have now bounced of the 38% retracement level, we could see a brief rally up towards 13715.
This area is critical for the index as 13692 is the June high where it took more than 28 trading sessions to break above this level. My view is that if we can reach 13620 -13715, then this could also form a potentially classic bearish Head & Shoulders pattern.
From that level, we would in addition have an ABC formations setup to take the index down to 12735. That would mark a drop of around 1000 points.
For the above scenario to be invalidated, the Dow will need to take out 14022 and head higher. 14052 – 14181 could then come back into play. Technical indicators such as the RSI suggest there is weakness in the index and had been diverging against price for several weeks.
Historically the Dow has been down 8 out of the last 9 years from Mid July to early August. Key turning dates to also watch for are 3 – 10th August.
Sandy Jadeja is Chief Market Strategist for ODL Securities and founder of www.Spreadbettingtowin.com where he teaches low risk trading strategies and money management.