Originally published by Guppytraders.com
The North Korean State Media is the local equivalent of President Trump's twitter account. The bombastic war of 140 characters threaten to impact the real economies of the United States, South Korea, Taiwan, Japan, China and other global markets. The proximate heartbeat is the Dow.
Some observers, frightened of heights, have been warning of a crash for many months, or even years in some cases. The technical analysis of the market has not supported their fears. Has that changed?
The 22,000 level has a nice ring to it but is meaningless in technical terms. The longer term technical upside target is 23,700. The short term the upside target of 21,600 has been achieved. The technical support level is of more interest and its the previous resistance level near 21,000. The 21,000 level was a significant resistance level, but it’s not the end of the Dow uptrend. In the longer term, the Dow has a 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 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 21,400.
The second feature is the well-established trading band. The lower edge of the trading band is near 15,600. The upper edge is near 18,300. The width of the trading band is measured and then projected upwards. Calculated from 21,000 this gives a longer term target near 23,700.
The third feature is the uptrend line starting from 2016 February. The slope of this new trend line is different from the slope of the long term uptrend line. The result is an ascending or rising wedge pattern. Its not a perfect pattern because its interrupted by a dip below the lower trend line in 2016 November.
A rising wedge is a bearish pattern that signals a high probability that prices will collapse and head in a downward direction.. As the price moves towards the apex of the pattern the momentum weakens. This has not happened and this is a bullish outcome.
The new uptrend line now offers support near 21,550.
When these three features are combined it provides information about the way any Dow retreat will develop. There are multiple support levels that will slow and arrest any market fall. We use the ANTSYSS trade method to extract good returns from these index movements.
This analysis assumes the Twitter war does not turn into a more physical conflict. However Dow history shows that any dip is quickly followed by a rapid recovery.
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.