The 12614 – 12707 level has repelled the index since February but last Friday finally saw the Dow Jones break this level and rally higher to a high of 12894. The question now becomes should we trade on the Long side?
Once the Dow broke above 12650 the momentum carried the index higher and saw many traders quickly cover their short positions. For the Bears this has been a frustrating three months as there have been multiple “Buy” and “Sell” signals which have proven to be false signals.
We should still look at the overall pattern which has been “Sideways” and the larger degree trend which has been “Down.” From this information we can say that only for the short term the trend is up and therefore surprises may still come in to the downside.
For the week ahead as long as the index is above its 20 day Moving Average and the RSI in positive territory then the upside targets are 12916 – 12960.
If a break below 12620 occurs then we may see sellers attempt to take the Dow lower. Mondays Inside bar suggests that there is some uncertainty at the current level but this is typical after such a move.
We may also see a retest of the 12700 area as a base to find support if the market is to continue higher.
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.