Despite much talk of a correction to come, the Dow Jones industrial average in New York remains on an uptrend.
However, some important support levels to monitor are shown here.
Dow Jones industrial average: Holding above support.
Recommendation: Buy pullbacks (with caution).
Trend: Up on all main time frames.
Strategy: Traders buy at current levels.
Daily
- The Dow is forming a potential double top, as labelled. It needs to close below line 3 (16 700) to confirm this bearish pattern. Lines 1 and 2 form a rising wedge. Rising wedges typically break to the downside.
- However, as long as the price remains above line 3 (16 700) the uptrend remains intact. Traders can buy at current levels (or as close to line 3 as possible).
- A close above line 4 (16 980) will also be a buy signal, and will set up a target to 17 220, based on a channel formed by lines 3 and 4.
- However, to the downside, a close below line 3 will be a sell short signal for a drop to 16 450 and very likely lower.
- For traders buying, the stop-loss is a closing price below 16 700. For selling short, a close below line 3 (if that happens), the stop will be a close above 16 830.
* Colin Abrams is an independent technical analyst. To subscribe to more recommendations by the author or to attend his courses, please go to www.themarket.co.za