Full DOW / INDU Analysis for W/C 9th April 2012

Full DOW / INDU Analysis for W/C 9th April 2012

This full analysis doesn’t hold any particular bias and may or may not result in the taking of new trading positions, but I’d like to share my thoughts on what I see in the charts based on historic variations of similar set-ups and discuss the possible outcomes.

The Weekly chart doesn’t appear to be at an obvious resistance level and it would be fair to say that calling a correction from the recent highs on this chart alone definitely isn’t something I could have predicted with confidence although there’s no certainty at this stage that a correction is in progress but it does look quite possible.

What does stand out here is that on all but one occasion flat tops lasting 4 or more consecutive Weeks have initiated drops! Also that 3rd lower high MACD negative divergence which is due to cross over any time now is almost certainly suggestive of a top of some kind being in, or close to being in place:

The daily chart shows good support in the 12,757 region and if set-ups for short positions become available then this level becomes an almost definite high probability initial target, negative MACD divergence strongly agrees:

The 4 hourly chart offers further great insight into the Market’s desire to go lower having broken down from it’s price channel, the only cause for concern being that Friday’s out of hours heavy non-farms sell off was obviously in thin trade compared to what we may have seen if the cash market had been open. This also has advantages too because the cash market will virtually always revisit those price areas seen in the Futures or Globex markets, therefore, whether you are long or short from the previous cash session the chances are opportunities will arise to escape with minimal damage in the coming Week.

One thing I’ve seen over and over again in practically every DOW correction is that price will re-test it’s channel from below before continuation of a longer term correction. If price cannot regain traction back inside the channel then this will become a great short entry level with minimal risk. As I say, when DOW corrects, this happens again, and again and again…. and I have chart after chart after chart showing this in action, so definitely worth watching as a potential short entry targeting that 12,757 level.

As you can also see from this 4 hourly chart, 12,890 is solid support and this is why I’ve entered a long position (12,899) with stop loss set on a 4 hourly close below 12,890. I’m not confident that the up trend will continue from this support, but support is demand (as opposed to supply), so in smaller trading time frames or (day trading) we have to respect that either by going flat or taking a counter trend trade on the long side as I have done.

All in all we’ve not seen confirmation of a longer term trend reversal just yet, but we have a situation where price is nearing an inflection point and using the analysis laid out above should give us the ammo to get into the next move very early on whether that move be up or down.

3 Comments
  • bracke
    Posted at 14:08h, 08 April

    RS2000

    Thanks for the DOW analysis which is very useful and informative.

    As you point out the DOW is at an inflection point; full reversal or back into the channel. What I am unable to ignore is the forthcoming US Election albeit eight months away in November.

    I find it difficult to believe that the FED/Obama will allow a full reversal of 1000 plus points. 500 maybe.

    The FED have expended much time and cash to hold the market up and the thought that they will abandon their strategy now does not seem likely.

    But odd things do happen and as ever I try to trade what I see and not what I think.

  • RS2OOO
    Posted at 18:48h, 08 April

    bracke,

    Not that I’m calling for a correction of any significance at this time, 8 Months, or even 5 Months is plenty of time for a 1000 point correction to occur and recover when you consider DOWrallied 1100 points just in the first quarter of this year.

    For now, I’d say a daily close below 12,900 almost certainly targets 12,757 area (support on the daily chart) and a daily close below that level probably targets 12,520’s.

    But we’ve not had confirmation of any of that as yet, so for now my analysis is just to try and keep us ahead of the curve.

    As I meantioned, I’m long at the moment based on the possible 4 hourly support at 12,890. Whether that position lasts 24 hours or 2 Weeks I’ve no idea at present.

  • bracke
    Posted at 14:33h, 09 April

    RS2000

    This week will be ‘interesting’.