Dow Jones pauses for breath…

By Sandy Jadeja 10:36 1- Sep -2009

The Dow Jones index has played out to expectations of pausing at the 9422 level.

With the recent rally traders may now be taking a time to consider if the current move has any more steam left to continue to new highs. Although we had seen a momentum buy signal over the last few weeks of trading the resistance level at 9422 – 9575 may be a tough barrier to overcome.

There is a possibility that the index may climb towards 10334 – 10495 if the positive momentum continues. But last weeks price action has now set up a three point pivot pattern. This would suggest that if the coming week sees further weakness in the Dow then lower prices may be in store.

For the bears to take over at this point there will need to be further evidence. This would be in the form of a sell signal in the momentum index and this can only be achieved if we see a thrust to the downside. We would also require a break below 9090 to confirm that an intermediate term trend would be in place.

As we know that the September month is generally a bearish month this may add weigh to a bearish scenario. But until we see the above factors take place the trend still remains to the upside.

The 20 period moving average may also be worth watching as the price is trading away from this indicator and a balancing of price may be on the horizon. We would look for the price level to drop lower to touch the indicator or for the indicator to catch up to the current price level.

We have also a reverse head and shoulders pattern that is still in effect and with all of these mixed signals in place the safest action would be either to lighten up on bullish positions or sit aside until we see the break of 9090 to confirm a signal to go short.

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.