Dow Jones stages a December rally…

Currently the index has staged a rally which suggests one of two scenarios; either we are in the early stages of the expected year end rally or this move is in the making of an ABC correction.

The first scenario would suggest that the Dow having cleared our initial target of 8811 would now need to aim for 9182 which could hold the index back and maybe see a pullback down to the 8600 – 8800 level. A move sustained above 8811 would be positive for the bulls to come back into control for the short term. If we do see an ABC corrective move into the 9182 area and see the index reverse sharply then the bear trend could resume and see the index head to new low.

One of the reasons that it is difficult for traders to play the current market moves is that the last two weeks has seen the indices move in a sideways range and these can prove very awkward to trade. A clear break above or below the channel is required for evidence of the next major move. And of course with the increase in volatility this does not help as the Stop Loss levels tend to be far away which does not help to find tradable risk reward ratios. Position traders may find that waiting on the sidelines may prove to be a better option until we see a definitive trend in place whilst short term traders may find that intra day moves provide profitable opportunities with tight risk management.

For the week ahead watch out for a break below 8115 which if broken could see the Dow take a sharp fall towards the 7400 handle.

The positive news is that we have also registered a buy signal on the momentum indicators which may help carry the index higher. Although this could turn out to be a premature signal it is worth noticing this at this stage as we are also in a month which tends to see market rallies.

In summary, we need to see upside strength continue over a few days before becoming bullish and short term the market looks positive but the longer term trend is still bearish telling us that rallies may fizzle out just as quickly as they start.

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.