What about the most famous stock index in the world? Where goes the Dow Jones? Is the rebound over?
Let’s see. The rebound drove the price from 6,460 to 8,880 points in 3 months. This is a 37.5% gain. From the recent high at 8,880 points posted on June 11, the index has corrected to 8,198 points before slightly bouncing back to 8,529 points (last closing price this morning).
The current price action looks like a consolidation rather than a real correction. Indeed, it found some support on the low levels of May and above the previous highs posted in last April (see dash blue line on the chart). This is really important as it means that the bullish trend generated in March in still in place. The bulls are still in the market and may push the index higher on the near-term.
The recent pull-back was due to the descending resistance line that capped the price just below 8,900 points. This resistance line comes from the highs posted last year in May (point A) and goes through lower highs posted in September (point B). The recent peak (point C) is the second lower high. The technical indicators show mix signals. The short-term indicators such as the Stochastic Momentum Index (SMI) suggest a bounce that should send the index test once again the resistance line. It would be a second attempt after the one which failed on June 11.
However, the medium-term indicators such as the MACD have triggered bearish signals already 2 weeks ago. They may remain oriented downward despite a small bounce during the following days.
Here is the scenario that we expect: the short-term momentum should drive the index towards the level of 8,700 points. It’s just 2% ahead. If the price action succeeds to break above, then the momentum indicators will switch and reverse upward, the resistance line will be cleared and a new wave of up-trend will be possible. More probably, we think that the resistance line is likely to hold once gain and that the Dow Jones should correct once again. What would be the first target on the downside? It’s the level of 8,200 points, which is the recent short-term support.
