Market Analysis: Dow Jones Industrial Average Retesting a Key Resistance Level

Technical Overview

  • On Thursday, April 12, U.S. indices propelled higher with the S&P 500 rising by 0.83% and both the DJIA and NASDAQ closing over 1% higher for the day.
  • NASDAQ gave a short-term buy signal by moving above 7,125 (an inverse H&S pattern on the 30-min chart with a roughly 7,400 price target – not shown).
  • The importance of NASDAQ’s buy signal, however, is not deemed significant as long as DJIA remains below a key resistance. More specifically, DJIA is retesting its “2018 Resistance” (red trendline in Figure 1). It was this trendline that foreshadowed the mid-March correction, as DJIA was the only index making a lower high in March (vs. NASDAQ and S&P both making higher highs at the time).
  • Today’s rally also halted at the 2018 Resistance, leading to a pullback during the last 30 minutes of trading (last red arrow).
  • The index is exhibiting resistance in the 24,500 – 24,650 area (see the confluence of green candles with upper shadows ending at the two horizontal yellow lines).
  • Since the April 2 low, the index has been moving higher and finding support at a short-term trendline (white line).

Figure 1. Dow Jones Industrial Average Daily Chart

Implications

  • The 2018 correction in DJIA is considered ongoing at least as long as the index remains below the 2018 resistance.
  • The index is consolidating, finding resistance below 24,650, while also making higher minor lows as its short-term support continues rising.

Outlook

  • Neutral until the index remains below the 2018 Resistance (red trendline) and above its short-term support (white trendline).
  • A move above 24,650, on a closing basis, is needed to shift the short-term outlook to bullish.
  • If the index fails to break the 2018 Resistance over the next couple of sessions, and subsequently breaks the short-term support, outlook will shift to bearish.

Featured image courtesy of Shutterstock.

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