It’s been a mixed bag of trading results for me over the past few weeks. I was long several US listed CFD’s but was stopped out last week after the large bearish correction day last Thursday when the Dow Jones Index fell over 300 points (1.8%) to take out the short term support of 16,800 points.  Over the entire week the Dow Jones fell 2.75% (467 points) to close at 16,493 points. Many traders with long positions would have seen their stops hit last week and much of the current market commentary on the internet talks of a market correction due to overvalued stocks and excessive market bullish momentum.

The first chart below shows the bearish candle which formed on Thursday July 31st. This candle took out the support level of 16,800 with ease with the next three trading days showing little resistance to further declines. I see the index falling further towards the next support level of 16,350 before the market perhaps pauses at this level. Any rally from current levels is likely to find resistance at 16,800.

CHART 1. DOW JONES (4 MONTH VIEW)

Moving out to the 12 month chart below shows the index in a broad up-trend. The interesting point to observe on this chart is how the 200 day moving average was able to support the price on previous retracements in October 2013 and February 2014. The index price is getting closer to the 200 day moving average again and it may just find support here and use it as a springboard to resume it’s  up-trend as it did previously. The 200 day moving average sits just below the 16,350 price area which also happens to be the next horizontal support level as seen on both of the charts.

At this stage I am not entering into any more trades and will happily sit on the sidelines until the market direction is confirmed.

Happy Trading

Flavio

CHART 2. DOW JONES (12 MONTH VIEW)