Updated 3/7 for Friday's market.
Key DOW Levels for 3/8
UP Above 10,600
DN Below 10,475
In the Range
The Dow stays in trading range, now at upper boundary of expanding triangle in the Daily. Watch 10,475 down tomorrow.
From yesterday's commentary, "...The Dow could easily continue to trade within the current trading range. We are in a passive mode right now, but want to watch the boundaries at 10,600 and 10,425 to catch the next medium term move..."
The Dow honored key resistance at 10,600 once again and continued to trade within the wide trading range from 10,425 to 10,600. We would expect the index to stay in this range for a while, but when it breaks (either way) that event should provide a powerful signal. The question is, "Which is the most likely break direction?"
In the Daily Chart, you can see that the Dow is at the upper boundary of a large expanding triangle. And, expanding triangles are negative patterns that usually break to the downside. Plus, we have gained a lot of ground over the past two weeks. So, it would be very reasonable to expect the Dow to bounce off this upper boundary and trade lower over the next 3-5 sessions.
We have one more "bearish" factor to point out today. The upper boundary of the expanding triangle intersects the upper boundary of the wide downward-sloping channel seen in the Weekly Chart - another strong resistance level at 10,600.
The evidence points to a decline. If the lower boundary of the trading range, seen in the 15 Minute Chart, is broken, the Dow could be in store for a large pull-back. The 60 Minute Chart shows the upward-sloping channel, which the Dow has traded within for nearly three weeks to gain a whopping 900 points. This is a long ride in a short period of time for this index, making a pull-back more likely.
Short Term Dow
In the short term, the Dow has formed a nice little trend line beneath the lows of a current uptrend in the 5 Minute Chart. Watch the lower boundary for a downside break at 10,510.
Medium Term Dow
In the medium term, we closed our Long position at 10,500 for an 8 point gain today - no big deal. And, we did not trigger another trade today and are now out of the market. We will continue to watch the boundaries of the trading range in the 15 Minute Chart, going Long above 10,600, and Short below 10,475. This level corresponds to the saucer pattern formed at about 2:30pm today in the 5 Minute Chart.
NASDAQ & OEX (SP 100)
Both indexes pulled back today and have now formed expanding triangles - potentially signaling a coming retracement and adding more fuel to the "pull-back" theory. The NASDAQ is at 50% Retracement, which also indicates potential for a pull-back. *
Summary
As expected, the Dow continued to trade between 10,475 to 10,600 today, and we closed our Long for an 8 point gain. The index is now vulnerable to a pull-back due to three separate technical factors: (1) it's over-extended, having gained 900 points in this move (2) an expanding triangle that has formed in the Daily, and we are at the upper boundary, and (3) we are also at an upper resistance line in the Weekly Chart at 10,600.
We will enter Short below 10,475, and Long above 10,600. If you can watch the market during the session, consider going Short earlier, at around 10,500, but hold tight stops if you do.
Thanks for listening, and Good luck in your trading..
Ed Downs
edowns@nirvsys.com
signalwatch.com
[Harry: Interesting about the intersection of the longer term down trend line and the expanding triange on the 3 rd graph.]
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