|On Friday the Dow made a bold move past its 50-day EMA resistance to give the bulls some hope in the near term. However what was previous support becomes potential new resistance. The chart shows the danger of Dow stalling here at the 9000 level, a previous congestion zone. This may lead to a test of the lower trendline of this wedge pattern. Failure here could lead to some serious downside back to the sub-7500, to perhaps challenge previous lows.|
|The current ADX indicator shows a weak number -- below 20 -- and still downsloping. This shows a potentially poor likelihood of a bounce at or near this lower trendline. A high ADX reading often results in a bullish bounce from nearby support, such as the 20-day EMA, resulting in a bullish resumption of the previous trend. A low ADX speaks of poor trend strength making the Dow's recent rise suspect. |
The stochastics indicators as displayed also hint at a likely downturn here with stochastic negative divergence to recent index levels. The MACD series are still bullish but show signs of being toppy and should be watched for further confirmation either way.
|Graphic provided by: stockcharts.com.|
|The volume considerations for this pattern are also correct as volume diminishes throughout the rising wedge pattern. If the lower trendline does not hold, it should bring a high volume decline. The measurement of the possible decline is taken from the vertical height at the start, or large end of the wedge. This could result in a 1000 point drop (or more) taken to the maximum bearish extreme.|
|A surprise move to the upside, past the top trendline would negate the bearish tone of this rising wedge pattern. At least, traders might expect a test of the lower trendline around the 8600 zone and the outcome there should be closely watched for further downside or even renewed upside. The markets remain reversal oriented in these volatile times and short-term traders should be alert to upside and downside possibilities.|
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