Dow Jones Rising Wedge Breakdown
The Dow Jones Industrial Average(DJI) moved lower for a second consecutive day, losing $631.6(-2.6%) in today’s trading session with a close at $23,018 Price also broke below the rising wedge pattern which is a move that I’ve been expecting ever since highlighting the bearish wedge pattern last week. Along with the wedge breakdown, price also closed below the local lows(red dashes) which was the recommended stop-loss level for long trades. It’s safe to assume at this point that the 50% Fibonacci retracement level was a strong resistance level and indicates that the month-long rally off of the coronavirus selloff low(0% Fibonacci level) was a bear market rally rather than a return to a bull market.
Now that price has violated the lower line of the wedge pattern a measured move can be made in order to find a lower target that price can be expected to reach going forward. The measured move is calculated by taking the difference from low of candle A to the high of candle B, which is the base of the wedge pattern and comes out to $4,381.4. Once you have this measurement, subtract it from the opening price of the first candle to open below the lower line of the wedge pattern, which is today’s price candle that had an opening price of $23,365.3. By taking $23,365.3 - $4,381.4 we get $18,983.9 which is roughly -18% below todays closing price and is now the lower price target to watch for and expect going forward.
Now that the anticipated move is a move lower we can switch from a long trade to a short trade, with the new stop-loss level for the short trade being at the local high(dashed blue). As long as price doesn’t make a new high we can remain short and then lower the stop-loss level as price moves lower with the expectation that the lower target shown in red will be met.
The Relative Strength Index(RSI) shows the green RSI line beginning to cross back below the 50 level which is the middle of the total RSI range. An RSI reading above 50 indicates short-term bullish price momentum while a reading below 50 indicates short-term bearish price momentum. The purple RSI signal line is still moving higher, but this line is calculated using a longer lookback period than the RSI line therefore it is slower to react to short-term price movements. The green RSI crossing below the purple signal line would indicate an increase in short-term bearish momentum and would be a sell signal confirmation move.
The Price Percent Oscillator(PPO) shows the green PPO line levelling out and beginning to roll over after just barely crossing into bullish territory above the 0 level. A PPO reading above 0 indicates bullish price momentum while a PPO reading below 0 indicates bearish price momentum. The expected move here is a continued push lower in the PPO and then an eventual cross below its purple signal line which would be a bearish cross and indicate that the short-term momentum behind price is bearish.
The current view on price remains neutral even though we have a bearish break of the rising wedge pattern and a move below the previous stop-loss level, and are now short with a lower price target. Today’s price candle closed gray which indicates no momentum behind price. Price is also still above the 38.2% Fibonacci level which could potentially act as support. In order to take on a bearish view here I’d like to see price move below the 38.2% level and back into the purple shaded region of the total Fibonacci range, as well as a further decline in the RSI and PPO.
Now that price has violated the lower line of the wedge pattern a measured move can be made in order to find a lower target that price can be expected to reach going forward. The measured move is calculated by taking the difference from low of candle A to the high of candle B, which is the base of the wedge pattern and comes out to $4,381.4. Once you have this measurement, subtract it from the opening price of the first candle to open below the lower line of the wedge pattern, which is today’s price candle that had an opening price of $23,365.3. By taking $23,365.3 - $4,381.4 we get $18,983.9 which is roughly -18% below todays closing price and is now the lower price target to watch for and expect going forward.
Now that the anticipated move is a move lower we can switch from a long trade to a short trade, with the new stop-loss level for the short trade being at the local high(dashed blue). As long as price doesn’t make a new high we can remain short and then lower the stop-loss level as price moves lower with the expectation that the lower target shown in red will be met.
The Relative Strength Index(RSI) shows the green RSI line beginning to cross back below the 50 level which is the middle of the total RSI range. An RSI reading above 50 indicates short-term bullish price momentum while a reading below 50 indicates short-term bearish price momentum. The purple RSI signal line is still moving higher, but this line is calculated using a longer lookback period than the RSI line therefore it is slower to react to short-term price movements. The green RSI crossing below the purple signal line would indicate an increase in short-term bearish momentum and would be a sell signal confirmation move.
The Price Percent Oscillator(PPO) shows the green PPO line levelling out and beginning to roll over after just barely crossing into bullish territory above the 0 level. A PPO reading above 0 indicates bullish price momentum while a PPO reading below 0 indicates bearish price momentum. The expected move here is a continued push lower in the PPO and then an eventual cross below its purple signal line which would be a bearish cross and indicate that the short-term momentum behind price is bearish.
The current view on price remains neutral even though we have a bearish break of the rising wedge pattern and a move below the previous stop-loss level, and are now short with a lower price target. Today’s price candle closed gray which indicates no momentum behind price. Price is also still above the 38.2% Fibonacci level which could potentially act as support. In order to take on a bearish view here I’d like to see price move below the 38.2% level and back into the purple shaded region of the total Fibonacci range, as well as a further decline in the RSI and PPO.