Dow Jones clears a key resistance level…

By Sandy Jadeja 09:53 5- May -2009

After struggling at an important resistance level of 8087 – 8173 for several weeks the Dow Jones has finally managed to push above the wall of concern.

Now that we have cleared the path the question on trader’s minds is are we looking to challenge the January high of 9088. This is an important level for the index as it could also change the longer term trend to Up. But there are a few concerns with the current picture.

We have a solid gain of +30% from the March low. This has put the index in a position where we may be approaching a point of decision. After such a strong rally some traders may be looking to pull their money out as the summer months approach. April months have been historically strong followed by the May turnarounds.

There is a possibility that the Dow could even approach close to if not touch the January high to form a Double top pattern but momentum indications are not confirming this just yet.

We also do not have a clear pattern as to the type of correction the Dow is forming. We often see a 3 wave correction but this is not present in the current picture which adds to confusion.

As long as the Dow can hold above 8087 then a bullish move remains intact. Any breakdowns that start to take place below this level could indicate that a larger force may be around the corner to take the index back down.

The 20 day Moving Average has also now corrected itself to point higher supporting the index to remain bullish at least for the short term.

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