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Monday's Range in Dow Jones Industrial Average Defines the Trend

Monday's Range in Dow Jones Industrial Average Defines the Trend

Jeremy Wagner, CEWA-M, Head of Education

Talking Points

-On Monday, Dow Jones Industrial Average (DJIA) retraces the majority of Friday’s sell off

-Use Monday’s high (18,358) and low (17,995) to mark off key levels to determine the short term trend

-This is a shorter term outlook for DJIA; Download our quarterly forecast for a longer term equities forecast.

It has been a wild two days for Dow Jones Industrial Average. After falling 2.2% on Friday, prices pivoted and increased 297 points from Monday’s open to Monday’s close.

The pivot on the Monday open occurred near an upward sloping trend line that has been defining the trend since February 2016 (blue line in the chart below). Therefore, the bounce higher from this level is important and the low established on Monday becomes a critical level for short term bulls.

Monday's Range in Dow Jones Industrial Average Defines the Trend

Chart prepared by Jeremy Wagner

Additionally, the high from yesterday at 18,358 occurred near a key level we have been following for the past several weeks as a possible support level defined by the purple dotted trend line. We know from technical analysis studies that old support when broken becomes new resistance. Therefore once the purple dotted line broke on Friday, it becomes new zone of potential resistance. Therefore, a rally that ceased near the purple dotted line creates a key level to watch to the upside.

Bottom line, we have a key level supporting and capping yesterday’s price movement. We can treat both levels as important and trend defining. A break of either level will likely accelerate movement in the direction of the break. Therefore, a breakout type of strategy is considered as we wait for the market to dictate to us which direction it wants to go.

A break below yesterday’s low near 17,900 likely accelerates towards 17,000. Likewise, a break above 18,358 opens the door towards new all-time highs.

In times like these it is easy to “root” for a certain direction meaning we wish DJIA would go this way or that way. However, the best recipe is to wait and let the market do the heavy decision making for us and use the break of the key levels as our decision point of the next trade.

---Written by Jeremy Wagner, Head Trading Instructor, DailyFX EDU

Follow me on Twitter at @JWagnerFXTrader .

See Jeremy’s recent articles at his Bio Page.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.