Reversal at Resistance
Dow hits resistance at 10,560, drops hard to the Close.
From prior commentary, "...the Dow has rounded off the top of the trading range, which implies a saucer-like formation. This type of rounded top typically implies impending weakness. Keep an eye on the bottom of the range at 10,500, as a solid break through this level could finally set the index free from the six-week trading range..." The Dow opened the session lower this morning, but rallied surprisingly from the lows to precisely the 10,560 resistance level, seen in the 15 Minute Chart. The index then reversed sharply at resistance and dropped viciously the remainder of the session, ultimately falling 127 from the highs of the day in just over 2 hours. The result: the Dow finally looks like it has broken free from the six-week trading range that had persisted to develop at the highs of the July rally.
The Daily Chart shows that we may already be at a crossroads in the chart, however. This timeframe shows the Dow has finally broken out from the range, but has already reached the major lower trend line that has formed beneath the lows of the overall advance that began in April. This line could force the Dow to hang around this level in the near-term before a break or bounce is seen.
Either way, the Dow should be considered weak beneath the 10,500 level, especially if 10,400 is broken tomorrow. Watch for a possible continuation pattern to form to confirm continued weakness.
Short Term Dow
The Dow closed the day within the boundaries of a tight trading range at the lows of the session from 10,430 to 10,460, seen in the 1 and 5 Minute Charts. Watch for a breakout from this range for movement at the Open.
Medium Term Dow
In the medium term, we entered the market Short at 10,484 and are still in the trade. We will hold stops at 10,480 for tomorrow's market, and will want to stay Short below 10,400. We will hold off on Longs, unless 10,500 is crossed to the upside; using 20 point stops.
NASDAQ & S&P
The NASDAQ and S&P each sold off heavily from their respective highs today, which eventually pushed them into new lows territory. Watch for continuation patterns to form for indications of continued weakness.
Summary
The Dow closed the day lower by 85 points and looks to have finally broken out from the large trading range. Look for the index to hold at the lows tomorrow, as further weakness builds beneath the 10,500 level. Continued overall weakness should be seen, especially if 10,400 is breached.
Thanks for listening, and Good luck in your trading!
Ed Downs
edowns@nirvsys.com
with assistance from..
Frank Ochoa, Sr. Market Analyst
fochoa@nirvsys.com
** Note: We are now posting Index entries and exits in Real Time, through our new Intraday Index Alerts service. To learn more about the service, visit SignalWatch.com and select Intraday Alerts from the main navigation bar. - SW Team
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