Dow Jones (12891)
In the previous review (12825) we had stated “As expected, the Dow had breached a barrier 12800-12840;now expect profit booking if failed to sustain above 12470; else, a slow and time consuming rally towards a target of 13200-13220".
The stop of 12470 remained untouched. Equally the trading was confined to a small range of 12600-12950. Apparently the markets look calm and range bound. But a closer look on the charts, specially long term, reveals a worrisome picture.
When the Dow was trading near 11900 area, I had stated that, even though the street is extremely bearish, the Dow may not fall in strait line hereafter, and may take good support to the recent low of 11500. Since then it has rallied and posted 12%+ returns since the low of Jan 08.
However, right now, the Dow is trading (and struggling to float) near a sensitive zone of 12900-12990, which is also a 50% retracement level of the entire fall from 14278 to 11507. Normally bear market rallies ends near 50% correction levels. Failure to overcome this resistance area (near about at 12990) will provide an excellent comeback opportunity for the bears. Further, on the weekly charts, there is a "Hang Man" formation on the candlestick charts. Which, by definition, is a bearish reversal pattern. On the flip side, a strong close, above this candle formation (a weekly close above 12987) will negate the bearish implication, all together. If it does so, then (only) expect a further rise up to 13200. On the downside watch 12604, a revised stop for the bulls.
