Originally published by Guppytraders.com
What is it going to take to stop the relentless uptrend in the Dow Jones Industrial Average? This is an important question because the answer tells traders if its time to tighten stops and get ready to exit, or if its time to buy the dips in anticipation of an uptrend continuation.
Investors who listened to analysts in early 29017, and again in July 2017 and exited the Dow because it was too high have missed out on some impressive gains.
The market observers who got it wrong both times in 2017 are now even more frightened of heights and continue to warn of a crash in the Dow . The technical analysis of the market does not support their fears.
The Dow is in a strong uptrend, but it moves in well-defined trading bands. The technical support level is the previous resistance level near 21,000. The 21,000 level was a significant resistance level. The short term rebound target from this level with the upside target of 21,600 has been achieved. In the longer term, the Dow has target near 23,700. These targets are calculated using chart pattern analysis.
The Dow chart now has three significant chart patterns and they combine to define the Dow, the strength of the longer term uptrend and to identify support features.
The first feature on the Dow chart is a long term uptrend line. This uptrend line starts in 2011, October. Between 2011 October and 2015 August the uptrend line acted as a support level.
In 2015 August the Dow moved below the uptrend line and then in 2017 February it again moved above the trend line. The trend line is projected into the future and it will continue to act as a support level. Current value is 21,700.
The second feature is the well-established trading band. The lower edge of the trading band is near 15,600 and the upper edge is near 18,300. The width of the trading band is measured and then projected upwards. The measurement is calculated from 21,000 this gives a longer term target near 23,700.
The third feature is the more recent uptrend line starting from 2016 February. This created a rising wedge bearish pattern that often signals prices will collapse and head in a downward direction.. This has not happened and this is a bullish outcome that supports a continuation of the uptrend. Pullbacks to the value of this trend line near 22200 are entry opportunities.
When these three features are combined it suggests the DOW uptrend will continue. This suggests that any pullbacks are buying opportunities for a continuation of the uptrend. The Dow does not show any end-of-trend chart patterns.
Daryl Guppy is a leading international financial technical analysis expert and special consultant to Axicorp. Guppy appears regularly on CNBC Asia and is known as "The Chart Man". Disclaimer: Daryl Guppy is not a financial advisor. These notes are for educational purposes only and provide an example of applied technical analysis.