Like the levels to watch in the S&P 500, the Dow Jones has its own levels short-term traders must be watching.
Let’s take a quick mid-day look at the overhead reference levels to watch on the Dow Jones index:
Click on image to enlarge!
The main idea is that price currently sits at a chart resistance cluster at the 10,400 level. These prices come in from the following:
50% Fibonacci Retracement: 10,438
200 day SMA: 10,374
Prior Price High: 10,450
This is the dominant chart cluster to watch for a potential roof over the rally, or a shattering of confluence resistance which would likely send the index up to the 10,600 level in a “Popped Stops” play from nervous bears/short-sellers covering (short squeeze).
There’s also the potential for a Broadening Formation to be in the making, starting with the narrow range of late May and expanding with the higher swing high of June and the lower swing low of July.
IF this is the dominant pattern, then we could expect a higher price high to form soon on a continued rally – that is, if this resistance area at 10,400 fails.
Continued upbeat earnings announcement will almost certainly result in an overhead resistance failure.
Keep in mind that Options Expire Friday, so that will add volatility and likely volume through the rest of the week, so caution in this environment is most important as the market figures out what it’s next swing will be.
For more daily updates from Corey, visit his blog at Afraid to Trade.com