The DOW is a tad worrying at the moment, not just because of yesterdays big red candle but also the fact that this occurred before surpassing our last high from the 2nd of May. 12938 now switches to the resistance column and we also have some resistance at 12879.
To the downside we have a number of supports that are coming into range. The first is our short term Trend Support at 12776 for todays action but the more significant is the low from our last trough at 12730. If this were breached we would then be making lower highs and lower lows conforming to Charles Dow's definition of a Bear Trend.
Indicators in Play
Trend Support Lines are probably the most basic and easy to understand tools in Technical Analysis. Its just a matter of joining higher lows together with two and some prefer three points of contact. The more dips that touch the line and the longer the support has been in play increases the potency of this type of trading tool.
Charles Dow defined a bear market as a series of declining peaks and troughs. The opposite applies for a bull trend.
Summary
Until yesterdays action each leg up on this recent bounce had produced higher highs. That is until yesterday. The next session or two are important as a break below 12730 would indicate a further pullback to our Fibonacci level down at 12580. As long as we remain above this point then things are ok but a failure here would not be good.
David has been
analyzing and trading the worlds financial markets for the past 25 years. After an initial grounding with Mercury Asset Management and Warburg Securities he went on to set up his own brokerage operation in London. Since then he has appeared regularly on Bloomberg Television and been involved in providing analytics on behalf of some of the worlds major exchanges. He is also a member of the Society of Technical Analysts.
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