Technical Analysis of Financial Markets

Friday, August 22, 2008

Dow - Weakening Trend ?

The Dow has rallied 6.6% since the year's low on July 15th. During this rally, a price/volume divergence has developed in terms of rising prices on diminishing volume. The ADX (Average Directional Index) oscillator, a measure of a trend's strength, has been declining against the rising price action signalling a weakening trend. Today's price action saw resistance beneath the underside of the broken trendline of the rally; support has become resistance. An entrance into a short position with stop on close above the 38.2% Fibonacci extension level of the previous sell-off (from May 19th to July 15th) at 11,709 may serve as a low-risk trade.

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