Dow Jones 50% Fibonacci Resistance
The Dow Jones opened at $23,698 and closed at $23,390 today for a -$328(1.4%) loss after a long holiday weekend, and after a new $2.3 trillion round of corporate bond bailouts announced by the Federal Reserve this past Thursday. Price failed to move above the critical 50% Fibonacci retracement level which is where price also found resistance on Thursday. The 50% Fib level is the midpoint of the total Fibonacci range from the all-time high made in February and the coronavirus selloff low made in March. Price failing to move above this 50% Fib level indicates that the current rally off of the March low should still be viewed as a bear market rally and that the low made in March is at risk of being tested again and/or breached to the downside.
With todays decline, price has formed a pattern similar to a bearish evening star reversal pattern at the 50% Fib level. This is a 3-candle pattern that consists of an initial move up(1), a small doji candle(2) and then a reversal to the downside(3). The pattern shown doesn’t quite meet the requirement to be a true evening star reversal pattern as today’s decline(3) didn’t close lower than the midpoint of the first candle of the pattern, but it is close and demands attention. For confirmation of a reversal, tomorrow’s price needs to move lower than today’s close and preferably lower than the midpoint of candle 1. Should we see a move lower tomorrow, the 38.2% Fib level is the first level of support to watch for on a reversal.
A move back below the 38.2% Fib level would put price back in the lower bearish range of the Fib retracements(purple-shaded area) and shift the current view on price from neutral to bearish. From there, the next level of support to watch is the 23.6% Fib which is also where the current stop-loss level is. Should price violate that level, all long trades should be exited with the expectation that price is going to make new lows, meaning that short-trades can be entered.
The Relative Strength Index(RSI) shows the green RSI line still above the 50 level which indicates bullish momentum, but is seeing a small pullback as price momentum has stalled at the 50% Fib level in the price chart. A move back below the 50 level would indicate that price is building bearish momentum.
The Price Percent Oscillator(PPO) continues to show the green PPO line rising above its purple signal line which indicates short-term bullish momentum, but both lines remain below the 0 level which indicates that overall momentum behind price is still bearish.
The overall view on price remains neutral here. A bullish view would require a price move above the 50% Fib level while a price move back below the 38.2% would shift my outlook back to bearish which is the move I’m expecting going forward.
With todays decline, price has formed a pattern similar to a bearish evening star reversal pattern at the 50% Fib level. This is a 3-candle pattern that consists of an initial move up(1), a small doji candle(2) and then a reversal to the downside(3). The pattern shown doesn’t quite meet the requirement to be a true evening star reversal pattern as today’s decline(3) didn’t close lower than the midpoint of the first candle of the pattern, but it is close and demands attention. For confirmation of a reversal, tomorrow’s price needs to move lower than today’s close and preferably lower than the midpoint of candle 1. Should we see a move lower tomorrow, the 38.2% Fib level is the first level of support to watch for on a reversal.
A move back below the 38.2% Fib level would put price back in the lower bearish range of the Fib retracements(purple-shaded area) and shift the current view on price from neutral to bearish. From there, the next level of support to watch is the 23.6% Fib which is also where the current stop-loss level is. Should price violate that level, all long trades should be exited with the expectation that price is going to make new lows, meaning that short-trades can be entered.
The Relative Strength Index(RSI) shows the green RSI line still above the 50 level which indicates bullish momentum, but is seeing a small pullback as price momentum has stalled at the 50% Fib level in the price chart. A move back below the 50 level would indicate that price is building bearish momentum.
The Price Percent Oscillator(PPO) continues to show the green PPO line rising above its purple signal line which indicates short-term bullish momentum, but both lines remain below the 0 level which indicates that overall momentum behind price is still bearish.
The overall view on price remains neutral here. A bullish view would require a price move above the 50% Fib level while a price move back below the 38.2% would shift my outlook back to bearish which is the move I’m expecting going forward.