Support Break

Dow breaks below key support at 10,200.

The Dow opened the session relatively calmly, attempting to hold key support near 10,200. After a brief rally, the Dow promptly resumed its downtrend, breaking decisively below the 10,200 level. The Dow continued to capitulate, eventually finding short-term support near 10,075. With one hour remaining in the trading session, the Dow staged a sharp rally to cut the intraday losses in half.

The Dow has established a firm downtrend this week. This is evident as the 15 minute and 60 minute charts reveal a downward sloping trendline across the major intraday highs. Provide the Dow continues to trade beneath this trendline, the downtrend will likely remain intact in the near term. However, should the Dow violate this trendline near 10,250, we could witness a profound near term rally back toward medium term resistance at 10,400 as seen in the 60 minute and daily charts.

While the majority of the chart indications are bearish in nature, we would be remiss to not direct your attention to a clear bullish indication. The 60 minute and daily charts reveal a clear upward sloping trendline across the major intraday lows. This trendline has been established since the Dow found support near 10,000 on April 20th. While this trendline was briefly violated today, it is evident that this trendline continues to provide a clear bullish trend indication. However, should the Dow violate this trendline near 10,125, we could experience a profound capitulation back toward 10,000.

In the near term, we may see a brief period of consolidation as the index trades between these two diverging trendlines. This is to be expected as the Dow gears up for its next decisive break.

Short Term Dow

Short term, the Dow established a clear intraday downtrend. Continue to look for weakness beneath 10,150. Further weakness beneath 10,075 will confirm a large capitulation.

Medium Term Dow

In the medium term, we covered our overnight short position with Monday's early rally attempt, resulting in a 20 point loss. We then re-entered short with the downside violation of 10,175. Currently, we remain short with a stop at breakeven. For Monday, we look to remain short beneath 10,125. Conversely, we will look for a long position above 10,250.

NASDAQ & S&P

The NASDAQ and S&P have provided a tale of two markets. The NASDAQ opened strongly and remains commented to an uptrend. Conversely, the S&P continues to mirror the Dow, demonstrating profound intraday weakness.

Summary

The Dow appears to be consolidating between two diverging medium term trendlines. A decisive break of either of these trendlines will likely provide a clear indication of future direction in the near term. Focus on a violation of 10,250 for a bullish indication and a violation of 10,125 for a bearish indication.

Thanks for listening, and Good luck in your trading!

Ed Downs
edowns@nirvsys.com

with assistance from..
C.E. Andrews, Market Analyst
candrews@nirvsys.com

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