Dow Jones momentum hitting a wall…

By Sandy Jadeja 12:57 22- Sep -2009

As the rally continues to take the Dow Jones index higher the real question is how much strength is left for higher prices.

We have seen a +51% gain on the index for an impressive rally leading the bears to consider leaving this market alone. But we may be at a juncture already or close to approaching one where the bears may regain control for a market correction.

Unlike some other global indices which have already reached their expected targets the Dow Jones is in-between two key levels. Firstly the 9422 level has been surpassed which would suggest higher prices to come yet. But the next level is still a few hundred points away at 10335.

In order for a turnaround the Dow would need to first take out a support level at 9435. A breach of this level could see the index take a nosedive quite rapidly towards lower prices.

To support the idea of a weaker market we also notice that momentum indicators are now starting to show signs of a divergence. As the market heads higher the indicators are barely nudging up on the longer term charts.

If 10335 is to be reached then it will need to happen within the next three to four weeks as time cycles are closing in for October to suggest a turn is imminent. A possible scenario is that the index would have a sharp two day rally followed by a technical reversal on a weekly basis. This would be a key factor to indicate a reversal. Until such time the market remains bullish albeit suspicious.

The 20 period moving average is also looking positive with no turn to the downside just yet. As the bulls hold the reins at the moment it would be wise to tighten stops up given the recent gains.

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.