Dow Jones breaks above resistance level…

By Sandy Jadeja 12:24 30- Jun -2009

The challenge for bulls and bears has continued and may be about to get even more wild.

There have been some conflicts on the charts with the recent price action where price action suggested weakness but a divergence on the momentum indicator provided a bullish signal.

With the Dow falling towards a short term support level we notice that the minimum pullback should really have taken the index down towards 7958. However we also had a sell signal on the momentum indicator which was very short lived.

After turning negative and the Dow also trading below its 20 day moving average the index has now seen the RSI turn upwards. Considering that we are at month end and also at the end of the 2^nd quarter, this is often a bullish period for the markets.

We are likely to see the index trade higher as long as the Dow can hold above 8430 – 8480. If this level holds and a clearance of 8500 comes in then we may trade up towards the lower bandwidth of resistance at 8530.

Above this key level we also have the all important 8773 and both of these areas have held the Dow back for several weeks. The month of July should prove to be a volatile period as the index tries to figure out its next move. Currently the Dow is still in a channel environment and a major break is on its way. With the break will arrive a volatile environment and this is likely to crush some obvious stop levels.

There is also a minor head and shoulder pattern in formation which may add weigh to the bearish scenario for the short to intermediate term outlook. With this in mind it may be wise to step aside until a clear indication of the next trend is in place.

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.