In the article published on this site 2 weeks ago, I projected the likelihood of at least a corrective decline on the index dailies based on upcoming resistance on the weekly chart. While there are similar patterns on all of the major stock index futures, my focus was on the Dow weekly chart. Here's an updated version:

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Price reached the 1.618 target extension from the prior high to low swing, and the key resistance right beyond this point is the major .786 retracement from the 2007 high to the 2009 low. The combination of the degree of extension on the current swing and the major resistance in the way of additional targets makes this a classic spot for at least a pause as the market considers whether to commit to more upside.

How low can this go? Let’s step down to the daily chart:

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I’ve made the most important levels bold so that they stand out. The closest key support level is 11928. While there have been strong intraday downside targets to attract price, we’d actually need to see a close below that point in order to focus on any specific downside target on the daily chart. Should we see that support break, the initial downside target is at 11643. Should price start find interim support after that break, the emphasis will be on resistance levels holding until that downside target is met. Additional targets and key support levels are in bold below that initial target too. Based on the same principles though, we have to be prepared for the possibility of the rally resuming unless we actually get that close below 11928. So while our shorter term trading has taken advantage of the decline, I’m not committing to short side on the daily timeframe for a longer term hold unless we see that break.

As an example of the kind of support which can hold for the rally to resume, here’s the current YM 45 minute chart from our chat room:

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Yesterday’s low was at the 1.272 downside target extension of the last major swing into the high. That qualifies as a strong support zone and may provide additional lift, especially since we have no daily downside targets in play to pull price downward.

For more from Mark including his “Chart of the Day”, visit MJBraun.net.