TREND-CHANNEL

The Dow Channel

04/27/09 09:36:48 AM

by James Kupfer

The last few weeks have brought little clarity to the direction for the Dow Jones 30, but a trading range can still be useful.

Security: DJ-30
Position: Hold

Given the huge move in the DJ30 that began in May 2008, it is no surprise that the market has paused over the last few weeks to consolidate recent gains. But is this a pause in a rally that will continue, or is it another top in the market? Frankly, I have no clue, but a possible trading strategy to take advantage of whatever scenario plays out has presented itself.

A tight trading range has formed that can be used to help determine when a breakout eventually occurs. The blue ovals shown in Figure 1 show the previous resistance levels of the DJIA. These happen to correspond roughly to the 61.8% Fibonacci retracement level from the January 2009 high to the March low. The top end of the range is 8200. In pink, we can see the support levels at 7800 that occurred at the 50% Fibonacci retracement level.

FIGURE 1: DJIA, DAILY. Is this a rally that has paused or is it another top in the market?

Graphic provided by: Wealth-Lab.

One of two things will eventually transpire: 1) The DJ will break above 8200, or 2) it will break below 7800. When one of these occurs, that will be the clearest indication we have gotten in weeks as to which direction that market will continue in for the short term. That will be the direction in which you should look to trade.

James Kupfer

Mr. Kupfer is a market professional and amateur stock market commentator. Disclosure: It is likely that Mr. Kupfer has or will enter a position in any security he writes about.

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TREND-CHANNEL

The Dow Channel

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